Hebei Yichen Industrial Group's (HKG:1596) Dividend Will Be Reduced To CN¥0.056

Hebei Yichen Industrial Group Corporation Limited (HKG:1596) has announced that on 20th of July, it will be paying a dividend ofCN¥0.056, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 1.4%, which is lower than the average for the industry.

See our latest analysis for Hebei Yichen Industrial Group

Hebei Yichen Industrial Group's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Hebei Yichen Industrial Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Unless the company can turn things around, EPS could fall by 1.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 24%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Hebei Yichen Industrial Group'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 2017, the annual payment back then was CN¥0.167, compared to the most recent full-year payment of CN¥0.0501. Dividend payments have fallen sharply, down 70% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. However, Hebei Yichen Industrial Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Hebei Yichen Industrial Group'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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Hebei Yichen Industrial Group that investors should know about before committing capital to this stock. Is Hebei Yichen Industrial Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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