Avary Holding(Shenzhen)Co (SZSE:002938) Is Reducing Its Dividend To CN¥0.50

Avary Holding(Shenzhen)Co., Limited (SZSE:002938) has announced that on 13th of June, it will be paying a dividend ofCN¥0.50, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 1.6% will still be comparable to other companies in the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Avary Holding(Shenzhen)Co's stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Avary Holding(Shenzhen)Co

Avary Holding(Shenzhen)Co's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Avary Holding(Shenzhen)Co was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 44.5%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Avary Holding(Shenzhen)Co's Dividend Has Lacked Consistency

Avary Holding(Shenzhen)Co has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. There hasn't been much of a change in the dividend over the last 5 years. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Avary Holding(Shenzhen)Co has only grown its earnings per share at 3.0% per annum over the past five years. If Avary Holding(Shenzhen)Co is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Avary Holding(Shenzhen)Co's Dividend

Overall, we think that Avary Holding(Shenzhen)Co could make a reasonable income stock, even though it did cut the dividend this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Avary Holding(Shenzhen)Co that you should be aware of before investing. Is Avary Holding(Shenzhen)Co 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.