Hubei Jiuzhiyang Infrared System (SZSE:300516) Is Increasing Its Dividend To CN¥0.352

Hubei Jiuzhiyang Infrared System Co., Ltd (SZSE:300516) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of May to CN¥0.352. Despite this raise, the dividend yield of 1.2% is only a modest boost to shareholder returns.

Check out our latest analysis for Hubei Jiuzhiyang Infrared System

Hubei Jiuzhiyang Infrared System's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Hubei Jiuzhiyang Infrared System's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

EPS is set to grow by 5.5% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 75%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Hubei Jiuzhiyang Infrared System's Dividend Has Lacked Consistency

Hubei Jiuzhiyang Infrared System 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. Since 2017, the annual payment back then was CN¥0.24, compared to the most recent full-year payment of CN¥0.352. This works out to be a compound annual growth rate (CAGR) of approximately 5.6% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

We Could See Hubei Jiuzhiyang Infrared System's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hubei Jiuzhiyang Infrared System has seen EPS rising for the last five years, at 5.5% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Hubei Jiuzhiyang Infrared System will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 1 warning sign for Hubei Jiuzhiyang Infrared System that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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