China PengFei Group (HKG:3348) Is Increasing Its Dividend To CN¥0.084

China PengFei Group Limited (HKG:3348) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of July to CN¥0.084. This makes the dividend yield 6.4%, which is above the industry average.

Check out our latest analysis for China PengFei Group

China PengFei Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. China PengFei Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 9.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

China PengFei Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2020, the annual payment back then was CN¥0.05, compared to the most recent full-year payment of CN¥0.074. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. China PengFei Group has seen EPS rising for the last five years, at 9.3% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On China PengFei Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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, China PengFei Group has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is China PengFei 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.