Shenzhen Longood Intelligent ElectricLTD (SZSE:300543) Is Reducing Its Dividend To CN¥0.05

Shenzhen Longood Intelligent Electric Co.,LTD (SZSE:300543) has announced that on 7th of June, it will be paying a dividend ofCN¥0.05, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 0.6%, which is lower than the average for the industry.

See our latest analysis for Shenzhen Longood Intelligent ElectricLTD

Shenzhen Longood Intelligent ElectricLTD'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. Shenzhen Longood Intelligent ElectricLTD is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Unless the company can turn things around, EPS could fall by 4.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 30%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Shenzhen Longood Intelligent ElectricLTD's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the annual payment back then was CN¥0.141, compared to the most recent full-year payment of CN¥0.05. The dividend has fallen 65% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Shenzhen Longood Intelligent ElectricLTD May Find It Hard To Grow The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. In the last five years, Shenzhen Longood Intelligent ElectricLTD's earnings per share has shrunk at approximately 4.9% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Shenzhen Longood Intelligent ElectricLTD's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Shenzhen Longood Intelligent ElectricLTD is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Shenzhen Longood Intelligent ElectricLTD 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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