Kingfore Energy Group (SZSE:001210) Has Announced That Its Dividend Will Be Reduced To CN¥0.05

Kingfore Energy Group Co., Ltd. (SZSE:001210) has announced that on 18th of June, it will be paying a dividend ofCN¥0.05, which a reduction from last year's comparable dividend. However, the dividend yield of 2.8% still remains in a typical range for the industry.

Check out our latest analysis for Kingfore Energy Group

Kingfore Energy Group's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Kingfore Energy Group's dividend was only 55% of earnings, however it was paying out 509% of free 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.

Looking forward, EPS could fall by 2.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 6.1%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Kingfore Energy Group Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The last annual payment of CN¥0.458 was flat on the annual payment from2 years ago. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Kingfore Energy Group has seen earnings per share falling at 2.5% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Kingfore Energy Group's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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 4 warning signs for Kingfore Energy Group that investors should take into consideration. Is Kingfore Energy Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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