Datang Environment Industry Group's (HKG:1272) Upcoming Dividend Will Be Larger Than Last Year's

The board of Datang Environment Industry Group Co., Ltd. (HKG:1272) has announced that it will be increasing its dividend by 45% on the 10th of August to HK$0.054. This will take the dividend yield from 5.4% to 5.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for Datang Environment Industry Group

Datang Environment Industry Group's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Datang Environment Industry Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Unless the company can turn things around, EPS could fall by 17.9% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 37%, which is definitely feasible to continue.

Datang Environment Industry Group's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from CN¥0.13 in 2017 to the most recent annual payment of CN¥0.045. Dividend payments have fallen sharply, down 64% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Datang Environment Industry Group's EPS has fallen by approximately 18% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Datang Environment Industry Group will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Datang Environment Industry Group (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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