China Everbright Environment Group (HKG:257) Is Reducing Its Dividend To HK$0.15

China Everbright Environment Group Limited (HKG:257) is reducing its dividend to HK$0.15 on the 17th of June. The dividend yield of 7.6% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for China Everbright Environment Group

China Everbright Environment Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, China Everbright Environment Group's earnings easily covered the dividend, but free cash flows were negative. 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.

The next year is set to see EPS grow by 6.9%. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

China Everbright Environment Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was HK$0.05 in 2012, and the most recent fiscal year payment was HK$0.34. This means that it has been growing its distributions at 21% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that China Everbright Environment Group has grown earnings per share at 12% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for China Everbright Environment Group's prospects of growing its dividend payments in the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think China Everbright Environment Group is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for China Everbright Environment Group you should be aware of, and 1 of them is concerning. If you are a dividend investor, you might also want to look at our curated list of high yield 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.