Shenzhen Sunway Communication (SZSE:300136) Will Pay A Larger Dividend Than Last Year At CN¥0.10

Shenzhen Sunway Communication Co., Ltd. (SZSE:300136) will increase its dividend from last year's comparable payment on the 14th of June to CN¥0.10. Despite this raise, the dividend yield of 0.6% is only a modest boost to shareholder returns.

Check out our latest analysis for Shenzhen Sunway Communication

Shenzhen Sunway Communication's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Shenzhen Sunway Communication's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 116.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.2% by next year, which is in a pretty sustainable range.

Shenzhen Sunway Communication's Dividend Has Lacked Consistency

It's comforting to see that Shenzhen Sunway Communication has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was CN¥0.0156, compared to the most recent full-year payment of CN¥0.10. This implies that the company grew its distributions at a yearly rate of about 23% 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.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Shenzhen Sunway Communication's earnings per share has shrunk at 12% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Shenzhen Sunway Communication will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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 1 warning sign for Shenzhen Sunway Communication that investors should know about before committing capital to this stock. 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.