China BlueChemical's (HKG:3983) Upcoming Dividend Will Be Larger Than Last Year's

The board of China BlueChemical Ltd. (HKG:3983) has announced that it will be paying its dividend of CN¥0.227 on the 28th of June, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 8.9%, which is fairly typical for the industry.

See our latest analysis for China BlueChemical

China BlueChemical's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last payment was quite easily covered by earnings, but it made up 121% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 37.4%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 75%, which is definitely on the higher side.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.15, compared to the most recent full-year payment of CN¥0.207. This implies that the company grew its distributions at a yearly rate of about 3.3% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. China BlueChemical has seen EPS rising for the last five years, at 12% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think China BlueChemical's payments are rock solid. While China BlueChemical is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, China BlueChemical has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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