Guangzhou Automobile Group's (HKG:2238) Dividend Will Be Reduced To CN¥0.0217

Guangzhou Automobile Group Co., Ltd. (HKG:2238) has announced that on 2nd of July, it will be paying a dividend ofCN¥0.0217, which a reduction from last year's comparable dividend. This means that the dividend yield is 2.0%, which is a bit low when comparing to other companies in the industry.

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Guangzhou Automobile Group's Future Dividend Projections Seem Positive

If it is predictable over a long period, even low dividend yields can be attractive. Even though Guangzhou Automobile Group is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, so there isn't too much pressure on the dividend.

View our latest analysis for Guangzhou Automobile Group

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. The dividend has gone from an annual total of CN¥0.0816 in 2015 to the most recent total annual payment of CN¥0.05. Doing the maths, this is a decline of about 4.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Guangzhou Automobile Group's earnings per share has shrunk at 20% a year over 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

We're Not Big Fans Of Guangzhou Automobile Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 14 analysts we track are forecasting for the future. Is Guangzhou Automobile Group not quite the opportunity you were looking for? Why not check out our selection of top 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.