Beijing SDL TechnologyLtd's (SZSE:002658) Dividend Will Be Reduced To CN¥0.30

Beijing SDL Technology Co.,Ltd. (SZSE:002658) has announced that on 22nd of May, it will be paying a dividend ofCN¥0.30, which a reduction from last year's comparable dividend. This means the annual payment is 4.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Beijing SDL TechnologyLtd

Beijing SDL TechnologyLtd's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Beijing SDL TechnologyLtd's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to expand by 80.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 75%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of CN¥0.0727 in 2014 to the most recent total annual payment of CN¥0.30. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Beijing SDL TechnologyLtd has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Beijing SDL TechnologyLtd's earnings per share has fallen at approximately 3.9% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Beijing SDL TechnologyLtd is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Beijing SDL TechnologyLtd that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.