Tiande Chemical Holdings (HKG:609) Has Announced That Its Dividend Will Be Reduced To CN¥0.02

Tiande Chemical Holdings Limited (HKG:609) is reducing its dividend from last year's comparable payment to CN¥0.02 on the 30th of October. However, the dividend yield of 9.9% is still a decent boost to shareholder returns.

Check out our latest analysis for Tiande Chemical Holdings

Tiande Chemical Holdings' Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Tiande Chemical Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to grow by 32.1% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 104%, which probably can't continue without starting to put some pressure on the balance sheet.

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¥0.036, compared to the most recent full-year payment of CN¥0.108. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Tiande Chemical Holdings Might Find It Hard To Grow Its Dividend

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. It's encouraging to see that Tiande Chemical Holdings has been growing its earnings per share at 32% a year over the past five years. Although earnings per share is up nicely Tiande Chemical Holdings is paying out 108% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On Tiande Chemical Holdings' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Tiande Chemical Holdings that investors need to be conscious of moving forward. Is Tiande Chemical 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.