Chengdu Galaxy MagnetsLtd (SZSE:300127) Will Pay A Dividend Of CN¥0.40

The board of Chengdu Galaxy Magnets Co.,Ltd. (SZSE:300127) has announced that it will pay a dividend on the 26th of June, with investors receiving CN¥0.40 per share. This means the annual payment is 2.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Chengdu Galaxy MagnetsLtd

Chengdu Galaxy MagnetsLtd's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Chengdu Galaxy MagnetsLtd was paying out quite a large proportion of both earnings and cash flow, with the dividend being 699% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 54.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 61%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.15, compared to the most recent full-year payment of CN¥0.40. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Chengdu Galaxy MagnetsLtd's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Chengdu Galaxy MagnetsLtd's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Chengdu Galaxy MagnetsLtd that investors should know about before committing capital to this stock. Is Chengdu Galaxy MagnetsLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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