Shougang Fushan Resources Group (HKG:639) Is Due To Pay A Dividend Of HK$0.18

Shougang Fushan Resources Group Limited's (HKG:639) investors are due to receive a payment of HK$0.18 per share on 26th of July. The yield is still above the industry average at 9.6%.

View our latest analysis for Shougang Fushan Resources Group

Shougang Fushan Resources Group Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Shougang Fushan Resources Group was paying out 74% of earnings, but a comparatively small of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to fall by 19.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 109%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.105 in 2014 to the most recent total annual payment of HK$0.28. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Shougang Fushan Resources Group has grown earnings per share at 13% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Shougang Fushan Resources Group Looks Like A Great Dividend Stock

Overall, we think that Shougang Fushan Resources Group could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Shougang Fushan Resources Group you should be aware of, and 1 of them is potentially serious. 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.