Chengdu Fusen Noble-House IndustrialLtd (SZSE:002818) Has Affirmed Its Dividend Of CN¥0.68

The board of Chengdu Fusen Noble-House Industrial Co.,Ltd. (SZSE:002818) has announced that it will pay a dividend on the 14th of May, with investors receiving CN¥0.68 per share. Based on this payment, the dividend yield on the company's stock will be 7.5%, which is an attractive boost to shareholder returns.

See our latest analysis for Chengdu Fusen Noble-House IndustrialLtd

Chengdu Fusen Noble-House IndustrialLtd Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 100% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 1.9% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 117% over the next year.

Chengdu Fusen Noble-House IndustrialLtd's Dividend Has Lacked Consistency

It's comforting to see that Chengdu Fusen Noble-House IndustrialLtd has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 7 years was CN¥0.294 in 2017, and the most recent fiscal year payment was CN¥1.08. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year 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.

Chengdu Fusen Noble-House IndustrialLtd May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Chengdu Fusen Noble-House IndustrialLtd's EPS was effectively flat over the past five years, which could stop the company from paying more every year. So the company has struggled to grow its EPS yet it's still paying out 100% of its earnings. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Chengdu Fusen Noble-House IndustrialLtd that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.