China Electronics Optics Valley Union Holding's (HKG:798) Dividend Will Be Increased To HK$0.025

The board of China Electronics Optics Valley Union Holding Company Limited (HKG:798) has announced that the dividend on 31st of August will be increased to HK$0.025, which will be 25% higher than last year. Even though the dividend went up, the yield is still quite low at only 3.8%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that China Electronics Optics Valley Union Holding's stock price has increased by 76% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for China Electronics Optics Valley Union Holding

China Electronics Optics Valley Union Holding's Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. 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 on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

China Electronics Optics Valley Union Holding's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The dividend has gone from CN¥0.025 in 2014 to the most recent annual payment of CN¥0.02. This works out to be a decline of approximately 2.6% per year over that time. 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 3.7% per year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On China Electronics Optics Valley Union Holding's Dividend

Overall, we always like to see the dividend being raised, but we don't think China Electronics Optics Valley Union Holding will make a great income stock. While China Electronics Optics Valley Union Holding is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, China Electronics Optics Valley Union Holding has 4 warning signs (and 1 which is concerning) we think you should know about. 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.