Northking Information Technology (SZSE:002987) Is Increasing Its Dividend To CN¥0.17

The board of Northking Information Technology Co., Ltd. (SZSE:002987) has announced that it will be paying its dividend of CN¥0.17 on the 16th of May, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 1.0%.

See our latest analysis for Northking Information Technology

Northking Information Technology's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Northking Information 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.

Looking forward, earnings per share is forecast to rise by 62.0% over the next year. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

Northking Information Technology's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The dividend has gone from an annual total of CN¥0.0729 in 2021 to the most recent total annual payment of CN¥0.17. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Northking Information Technology has grown earnings per share at 27% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Northking Information Technology's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Northking Information Technology's payments are rock solid. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Northking Information Technology you should be aware of, and 1 of them is potentially serious. Is Northking Information Technology not quite the opportunity you were looking for? Why not check out our selection of top 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.