Shenzhen Absen OptoelectronicLtd (SZSE:300389) Will Pay A Dividend Of CN¥0.30

Shenzhen Absen Optoelectronic Co.,Ltd. (SZSE:300389) has announced that it will pay a dividend of CN¥0.30 per share on the 22nd of May. The dividend yield will be 2.1% based on this payment which is still above the industry average.

Check out our latest analysis for Shenzhen Absen OptoelectronicLtd

Shenzhen Absen OptoelectronicLtd's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Shenzhen Absen OptoelectronicLtd was easily earning enough to 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 42.5% over the next year. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Shenzhen Absen OptoelectronicLtd's Dividend Has Lacked Consistency

It's comforting to see that Shenzhen Absen OptoelectronicLtd has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was CN¥0.125 in 2015, and the most recent fiscal year payment was CN¥0.30. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Shenzhen Absen OptoelectronicLtd 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Shenzhen Absen OptoelectronicLtd's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Shenzhen Absen OptoelectronicLtd could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Shenzhen Absen OptoelectronicLtd's Dividend

Overall, we think Shenzhen Absen OptoelectronicLtd is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Shenzhen Absen OptoelectronicLtd that investors should take into consideration. Is Shenzhen Absen OptoelectronicLtd 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.