Guoquan Food (Shanghai) (HKG:2517) Is Increasing Its Dividend To CN¥0.0817

The board of Guoquan Food (Shanghai) Co., Ltd. (HKG:2517) has announced that it will be paying its dividend of CN¥0.0817 on the 29th of August, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.7%, which is below the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Guoquan Food (Shanghai)'s stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Guoquan Food (Shanghai)'s Projected Earnings Seem Likely To Cover Future Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before this announcement, Guoquan Food (Shanghai) was paying out 89% of earnings, but a comparatively small 46% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share is forecast to rise by 21.2% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78% - on the higher side, but we wouldn't necessarily say this is unsustainable.

See our latest analysis for Guoquan Food (Shanghai)

Guoquan Food (Shanghai) Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Guoquan Food (Shanghai)'s Dividend Might Lack Growth

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Guoquan Food (Shanghai) has been growing its earnings per share at 62% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Guoquan Food (Shanghai) is not retaining those earnings to reinvest in growth.

Our Thoughts On Guoquan Food (Shanghai)'s Dividend

In summary, while it's always good to see the dividend being raised, we don't think Guoquan Food (Shanghai)'s payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 2 warning signs for Guoquan Food (Shanghai) that investors should know about before committing capital to this stock. 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.