Shenzhen AOTO Electronics (SZSE:002587) Has Announced That It Will Be Increasing Its Dividend To CN¥0.06

The board of Shenzhen AOTO Electronics Co., Ltd. (SZSE:002587) has announced that it will be paying its dividend of CN¥0.06 on the 31st of May, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.0% is only a modest boost to shareholder returns.

See our latest analysis for Shenzhen AOTO Electronics

Shenzhen AOTO Electronics Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, the company was paying out 372% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, EPS could fall by 42.7% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 605%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from CN¥0.0392 total annually to CN¥0.06. This implies that the company grew its distributions at a yearly rate of about 4.3% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Shenzhen AOTO Electronics' earnings per share has shrunk at 43% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

We're Not Big Fans Of Shenzhen AOTO Electronics' Dividend

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Shenzhen AOTO Electronics has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about. 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.