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

The board of Shougang Fushan Resources Group Limited (HKG:639) has announced that it will pay a dividend of HK$0.18 per share on the 26th of July. The yield is still above the industry average at 7.8%.

Check out our latest analysis for Shougang Fushan Resources Group

Shougang Fushan Resources Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Shougang Fushan Resources Group was paying out 74% of earnings, but a comparatively small 34% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 20.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 110%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was HK$0.105 in 2014, and the most recent fiscal year payment was HK$0.28. This implies that the company grew its distributions at a yearly rate of about 10% 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Shougang Fushan Resources Group has seen EPS rising for the last five years, at 13% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

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. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Shougang Fushan Resources Group (1 makes us a bit uncomfortable!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.