Zhuzhou Hongda ElectronicsLtd (SZSE:300726) Will Pay A Smaller Dividend Than Last Year

Zhuzhou Hongda Electronics Corp.,Ltd. (SZSE:300726) is reducing its dividend from last year's comparable payment to CN¥0.30 on the 28th of May. This payment takes the dividend yield to 1.3%, which only provides a modest boost to overall returns.

View our latest analysis for Zhuzhou Hongda ElectronicsLtd

Zhuzhou Hongda ElectronicsLtd's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Zhuzhou Hongda ElectronicsLtd's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 55.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

Zhuzhou Hongda ElectronicsLtd's Dividend Has Lacked Consistency

It's comforting to see that Zhuzhou Hongda ElectronicsLtd 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 2018, the annual payment back then was CN¥0.10, compared to the most recent full-year payment of CN¥0.30. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Zhuzhou Hongda ElectronicsLtd has been growing its earnings per share at 11% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Zhuzhou Hongda ElectronicsLtd's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Zhuzhou Hongda ElectronicsLtd does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Zhuzhou Hongda ElectronicsLtd that investors should take into consideration. 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.