Shenzhen Sunnypol OptoelectronicsLtd's (SZSE:002876) Dividend Is Being Reduced To CN¥0.025

Shenzhen Sunnypol Optoelectronics Co.,Ltd. (SZSE:002876) is reducing its dividend to CN¥0.025 on the 29th of Maywhich is 88% less than last year's comparable payment of CN¥0.20. This means that the annual payment is 0.8% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Shenzhen Sunnypol OptoelectronicsLtd

Shenzhen Sunnypol OptoelectronicsLtd's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Shenzhen Sunnypol OptoelectronicsLtd's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 1.3%, which makes us pretty comfortable with the sustainability of the dividend.

Shenzhen Sunnypol OptoelectronicsLtd's Dividend Has Lacked Consistency

Shenzhen Sunnypol OptoelectronicsLtd has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the dividend has gone from CN¥0.165 total annually to CN¥0.20. This works out to be a compound annual growth rate (CAGR) of approximately 3.3% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See Shenzhen Sunnypol OptoelectronicsLtd's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Shenzhen Sunnypol OptoelectronicsLtd has been growing its earnings per share at 5.6% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Shenzhen Sunnypol OptoelectronicsLtd's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 4 warning signs for Shenzhen Sunnypol OptoelectronicsLtd that investors should know about before committing capital to this stock. Is Shenzhen Sunnypol OptoelectronicsLtd 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.