SHENZHEN TOPRAYSOLARLtd (SZSE:002218) Has Announced That Its Dividend Will Be Reduced To CN¥0.02

SHENZHEN TOPRAYSOLAR Co.,Ltd. (SZSE:002218) is reducing its dividend from last year's comparable payment to CN¥0.02 on the 9th of July. Based on this payment, the dividend yield will be 0.7%, which is lower than the average for the industry.

Check out our latest analysis for SHENZHEN TOPRAYSOLARLtd

SHENZHEN TOPRAYSOLARLtd Doesn't Earn Enough To Cover Its Payments

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, the dividend made up 213% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to fall by 32.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 317%, which could put the dividend under pressure if earnings don't start to improve.

SHENZHEN TOPRAYSOLARLtd's Dividend Has Lacked Consistency

It's comforting to see that SHENZHEN TOPRAYSOLARLtd 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 9 years was CN¥0.025 in 2015, and the most recent fiscal year payment was CN¥0.02. Doing the maths, this is a decline of about 2.4% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. SHENZHEN TOPRAYSOLARLtd's EPS has fallen by approximately 33% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

We're Not Big Fans Of SHENZHEN TOPRAYSOLARLtd's Dividend

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for SHENZHEN TOPRAYSOLARLtd (of which 1 makes us a bit uncomfortable!) you should know about. 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.

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