Shenzhen Farben Information TechnologyLtd (SZSE:300925) Has Announced That It Will Be Increasing Its Dividend To CN¥0.08

Shenzhen Farben Information Technology Co.,Ltd. (SZSE:300925) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of June to CN¥0.08. Based on this payment, the dividend yield for the company will be 0.8%, which is fairly typical for the industry.

Check out our latest analysis for Shenzhen Farben Information TechnologyLtd

Shenzhen Farben Information TechnologyLtd's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Shenzhen Farben Information TechnologyLtd's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 2.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.

Shenzhen Farben Information TechnologyLtd Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the annual payment back then was CN¥0.0346, compared to the most recent full-year payment of CN¥0.08. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Shenzhen Farben Information TechnologyLtd May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 2.1% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Shenzhen Farben Information TechnologyLtd could always pay out a higher proportion of earnings to increase shareholder returns.

An additional note is that the company has been raising capital by issuing stock equal to 14% of shares outstanding in the last 12 months. 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, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. For example, we've picked out 3 warning signs for Shenzhen Farben Information TechnologyLtd that investors should know about before committing capital to this stock. 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.