China Electronics Optics Valley Union Holding's (HKG:798) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of China Electronics Optics Valley Union Holding Company Limited (HKG:798) has announced that it will be increasing its dividend by 25% on the 31st of August to CN¥0.025, up from last year's comparable payment of CN¥0.02. Despite this raise, the dividend yield of 4.7% is only a modest boost to shareholder returns.

See 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. Before making this announcement, China Electronics Optics Valley Union Holding was paying a whopping 137% as a dividend, but this only made up 24% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 3.7% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

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. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from CN¥0.025 total annually to CN¥0.0203. 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

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. If China Electronics Optics Valley Union Holding is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for China Electronics Optics Valley Union Holding (1 doesn't sit too well with us!) 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.