Shanghai Baosight SoftwareLtd (SHSE:600845) Is Increasing Its Dividend To CN¥1.00

Shanghai Baosight Software Co.,Ltd. (SHSE:600845) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of June to CN¥1.00. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Shanghai Baosight SoftwareLtd

Shanghai Baosight SoftwareLtd's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Shanghai Baosight SoftwareLtd's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 109% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 124.4% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 52% which would be quite comfortable going to take the dividend forward.

Shanghai Baosight SoftwareLtd Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was CN¥0.0455 in 2014, and the most recent fiscal year payment was CN¥1.00. This implies that the company grew its distributions at a yearly rate of about 36% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Shanghai Baosight SoftwareLtd's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Shanghai Baosight SoftwareLtd has seen EPS rising for the last five years, at 39% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Shanghai Baosight SoftwareLtd hasn't been doing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Shanghai Baosight SoftwareLtd is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Shanghai Baosight SoftwareLtd 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.