Shanghai Sinyang Semiconductor Materials (SZSE:300236) Is Increasing Its Dividend To CN¥0.1989

The board of Shanghai Sinyang Semiconductor Materials Co., Ltd. (SZSE:300236) has announced that it will be paying its dividend of CN¥0.1989 on the 30th of May, an increased payment from last year's comparable dividend. This takes the annual payment to 0.6% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Shanghai Sinyang Semiconductor Materials

Shanghai Sinyang Semiconductor Materials' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Shanghai Sinyang Semiconductor Materials was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 137.2%. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CN¥0.075 in 2014 to the most recent total annual payment of CN¥0.20. This means that it has been growing its distributions at 10% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Shanghai Sinyang Semiconductor Materials' EPS has declined at around 13% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Shanghai Sinyang Semiconductor Materials' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Shanghai Sinyang Semiconductor Materials will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Shanghai Sinyang Semiconductor Materials that investors need to be conscious of moving forward. 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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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.