Hainan Drinda New Energy Technology (SZSE:002865) Will Pay A Larger Dividend Than Last Year At CN¥0.7462

Hainan Drinda New Energy Technology Co., Ltd.'s (SZSE:002865) dividend will be increasing from last year's payment of the same period to CN¥0.7462 on 26th of April. The payment will take the dividend yield to 1.5%, which is in line with the average for the industry.

Check out our latest analysis for Hainan Drinda New Energy Technology

Hainan Drinda New Energy Technology's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Hainan Drinda New Energy Technology is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 115.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, which is in the range that makes us comfortable with the sustainability of the dividend.

Hainan Drinda New Energy Technology's Dividend Has Lacked Consistency

Looking back, Hainan Drinda New Energy Technology's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2017, the annual payment back then was CN¥0.0358, compared to the most recent full-year payment of CN¥0.75. This means that it has been growing its distributions at 54% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Hainan Drinda New Energy Technology has impressed us by growing EPS at 70% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We should note that Hainan Drinda New Energy Technology has issued stock equal to 15% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Hainan Drinda New Energy Technology's payments are rock solid. While Hainan Drinda New Energy Technology is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Hainan Drinda New Energy Technology (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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