Bestsun Energy's (SHSE:600681) Shareholders Will Receive A Smaller Dividend Than Last Year

Bestsun Energy Co., Ltd. (SHSE:600681) has announced that on 25th of October, it will be paying a dividend ofCN¥0.09, which a reduction from last year's comparable dividend. However, the dividend yield of 5.1% is still a decent boost to shareholder returns.

See our latest analysis for Bestsun Energy

Bestsun Energy's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 107% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 62%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, could fall by 17.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 93%, which is definitely on the higher side.

Bestsun Energy's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the dividend has gone from CN¥0.321 total annually to CN¥0.18. Doing the maths, this is a decline of about 9.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Bestsun Energy's EPS has fallen by approximately 17% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Bestsun Energy'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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. To that end, Bestsun Energy has 2 warning signs (and 1 which is concerning) we think you should know about. Is Bestsun Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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