China Electronics Optics Valley Union Holding Company Limited (HKG:798) has announced that it will be increasing its dividend on the 31st of August to HK$0.025, which will be 25% higher than last year. This makes the dividend yield about the same as the industry average at 5.2%.
China Electronics Optics Valley Union Holding's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, China Electronics Optics Valley Union Holding's dividend was only 24% of earnings, however it was paying out 137% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Over the next year, EPS could expand by 3.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.
China Electronics Optics Valley Union Holding's Dividend Has Lacked Consistency
China Electronics Optics Valley Union Holding has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the dividend has gone from CN¥0.025 to CN¥0.02. The dividend has shrunk at around 2.6% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
China Electronics Optics Valley Union Holding May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 3.7% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, China Electronics Optics Valley Union Holding could always pay out a higher proportion of earnings to increase shareholder returns.
Our Thoughts On China Electronics Optics Valley Union Holding's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for China Electronics Optics Valley Union Holding you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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.