China Foods' (HKG:506) Upcoming Dividend Will Be Larger Than Last Year's

China Foods Limited's (HKG:506) dividend will be increasing to HK$0.13 on 8th of July. This will take the annual payment to 4.6% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for China Foods

China Foods' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, China Foods was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 5.8%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 79%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was CN¥0.059 in 2012, and the most recent fiscal year payment was CN¥0.10. This works out to be a compound annual growth rate (CAGR) of approximately 5.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. China Foods has impressed us by growing EPS at 16% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We Really Like China Foods' Dividend

Overall, a dividend increase is always good, and we think that China Foods is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for China Foods that investors should take into consideration. 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.