Shenzhou International Group Holdings (HKG:2313) Has Announced That It Will Be Increasing Its Dividend To CN¥1.38

Shenzhou International Group Holdings Limited's (HKG:2313) dividend will be increasing from last year's payment of the same period to CN¥1.38 on 26th of September. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.

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Shenzhou International Group Holdings' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Shenzhou International Group Holdings' dividend was only 56% of earnings, however it was paying out 102% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 41.0% over the next year. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Shenzhou International Group Holdings

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of CN¥0.799 in 2015 to the most recent total annual payment of CN¥2.52. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. 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.

Shenzhou International Group Holdings May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 4.6% per year. Growth of 4.6% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Shenzhou International Group Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Shenzhou International Group Holdings 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Shenzhou International Group Holdings that you should be aware of before investing. Is Shenzhou International Group Holdings 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.