Yongsheng Advanced Materials (HKG:3608) Has Announced That Its Dividend Will Be Reduced To HK$0.01

Yongsheng Advanced Materials Company Limited (HKG:3608) is reducing its dividend to HK$0.01 on the 29th of October. However, the dividend yield of 2.4% is still a decent boost to shareholder returns.

See our latest analysis for Yongsheng Advanced Materials

Yongsheng Advanced Materials' Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Yongsheng Advanced Materials was paying only paying out a fraction of earnings, but the payment was a massive 97% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, EPS could fall by 14.8% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 45%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Yongsheng Advanced Materials' Dividend Has Lacked Consistency

Yongsheng Advanced Materials has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from CN¥0.032 to CN¥0.025. This works out to be a decline of approximately 4.1% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Yongsheng Advanced Materials' EPS has declined at around 15% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Yongsheng Advanced Materials' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Yongsheng Advanced Materials is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Yongsheng Advanced Materials (1 can't be ignored!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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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.
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