China Lilang (HKG:1234) Has Announced That Its Dividend Will Be Reduced To HK$0.16

China Lilang Limited (HKG:1234) is reducing its dividend to HK$0.16 on the 24th of May. This means the annual payment is 8.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for China Lilang

China Lilang's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 114% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 53.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from CN¥0.17 to CN¥0.28. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

China Lilang May Find It Hard To Grow The Dividend

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. China Lilang has seen earnings per share falling at 2.6% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

China Lilang'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 China Lilang is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for China Lilang that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.