Jiangxi Hongcheng EnvironmentLtd's (SHSE:600461) Dividend Will Be Increased To CN¥0.4407

The board of Jiangxi Hongcheng Environment Co.,Ltd. (SHSE:600461) has announced that it will be paying its dividend of CN¥0.4407 on the 4th of July, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.0%, providing a nice boost to shareholder returns.

View our latest analysis for Jiangxi Hongcheng EnvironmentLtd

Jiangxi Hongcheng EnvironmentLtd's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, Jiangxi Hongcheng EnvironmentLtd is earning enough to cover the payment, but then it makes up 5,764% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

If the trend of the last few years continues, EPS will grow by 13.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from CN¥0.0667 total annually to CN¥0.479. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. Jiangxi Hongcheng EnvironmentLtd has seen EPS rising for the last five years, at 13% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

We should note that Jiangxi Hongcheng EnvironmentLtd has issued stock equal to 13% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Jiangxi Hongcheng EnvironmentLtd's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Jiangxi Hongcheng EnvironmentLtd is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Jiangxi Hongcheng EnvironmentLtd that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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