China Education Group Holdings' (HKG:839) Shareholders Will Receive A Smaller Dividend Than Last Year

China Education Group Holdings Limited (HKG:839) has announced that on 27th of March, it will be paying a dividend ofCN¥0.1481, which a reduction from last year's comparable dividend. However, the dividend yield of 5.9% still remains in a typical range for the industry.

Check out our latest analysis for China Education Group Holdings

China Education Group Holdings' Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, China Education Group Holdings was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 75.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.

China Education Group Holdings' Dividend Has Lacked Consistency

Looking back, China Education Group Holdings' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the annual payment back then was CN¥0.0648, compared to the most recent full-year payment of CN¥0.271. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. China Education Group Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. We are encouraged to see that China Education Group Holdings has grown earnings per share at 15% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

We Really Like China Education Group Holdings' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that China Education Group Holdings has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for China Education Group Holdings that investors need to be conscious of moving forward. Is China Education 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.