SGSG Science&Technology Zhuhai (SZSE:300561) Has Announced That Its Dividend Will Be Reduced To CN¥0.035

SGSG Science&Technology Co., Ltd. Zhuhai (SZSE:300561) has announced that on 31st of May, it will be paying a dividend ofCN¥0.035, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 0.4%, which is lower than the average for the industry.

See our latest analysis for SGSG Science&Technology Zhuhai

SGSG Science&Technology Zhuhai Is Paying Out More Than It Is Earning

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

If the company can't turn things around, EPS could fall by 38.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 794%, which could put the dividend in jeopardy if the company's earnings don't improve.

SGSG Science&Technology Zhuhai's Dividend Has Lacked Consistency

It's comforting to see that SGSG Science&Technology Zhuhai has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the dividend has gone from CN¥0.0615 total annually to CN¥0.035. This works out to be a decline of approximately 7.7% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been sinking by 39% over the last 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.

We're Not Big Fans Of SGSG Science&Technology Zhuhai's Dividend

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

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. Case in point: We've spotted 2 warning signs for SGSG Science&Technology Zhuhai (of which 1 is significant!) you should know about. 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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