Shenzhou International Group Holdings (HKG:2313) Is Increasing Its Dividend To CN¥1.25

Shenzhou International Group Holdings Limited (HKG:2313) will increase its dividend from last year's comparable payment on the 27th of September to CN¥1.25. Based on this payment, the dividend yield for the company will be 3.9%, which is fairly typical for the industry.

See our latest analysis for Shenzhou International Group Holdings

Shenzhou International Group Holdings' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Shenzhou International Group Holdings was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 70.2%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from CN¥0.599 total annually to CN¥2.28. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 2.3% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Shenzhou International Group Holdings that investors need to be conscious of moving forward. 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.