Wuchan Zhongda GroupLtd's (SHSE:600704) Dividend Will Be Increased To CN¥0.21

Wuchan Zhongda Group Co.,Ltd. (SHSE:600704) will increase its dividend from last year's comparable payment on the 5th of July to CN¥0.21. This will take the annual payment to 4.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Wuchan Zhongda GroupLtd

Wuchan Zhongda GroupLtd's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Wuchan Zhongda GroupLtd's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 5.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.0513, compared to the most recent full-year payment of CN¥0.21. This means that it has been growing its distributions at 15% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Wuchan Zhongda GroupLtd has seen EPS rising for the last five years, at 5.5% per annum. Wuchan Zhongda GroupLtd definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Wuchan Zhongda GroupLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think Wuchan Zhongda GroupLtd will make a great income stock. While Wuchan Zhongda GroupLtd is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Wuchan Zhongda GroupLtd (of which 2 shouldn't be ignored!) you should know about. Is Wuchan Zhongda GroupLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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