China PengFei Group (HKG:3348) Is Increasing Its Dividend To CN¥0.0945

China PengFei Group Limited (HKG:3348) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of July to CN¥0.0945. This will take the dividend yield to an attractive 8.1%, providing a nice boost to shareholder returns.

View our latest analysis for China PengFei Group

China PengFei Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, China PengFei Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 8.1% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

China PengFei Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2020, the dividend has gone from CN¥0.05 total annually to CN¥0.0857. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. China PengFei Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has 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. It's encouraging to see that China PengFei Group has been growing its earnings per share at 8.1% a year over the past five years. China PengFei Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like China PengFei Group's Dividend

Overall, a dividend increase is always good, and we think that China PengFei Group is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for China PengFei Group that investors need to be conscious of moving forward. 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.