China Electronics Optics Valley Union Holding's (HKG:798) Upcoming Dividend Will Be Larger Than Last Year's

China Electronics Optics Valley Union Holding Company Limited (HKG:798) will increase its dividend on the 31st of August to HK$0.025, which is 25% higher than last year. The announced payment will take the dividend yield to 6.1%, which is in line with the average for the industry.

Check out our latest analysis for China Electronics Optics Valley Union Holding

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

Solid dividend yields are great, but they only really help us if the payment is sustainable. 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

Looking back, China Electronics Optics Valley Union Holding's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from CN¥0.025 to CN¥0.02. Doing the maths, this is a decline of about 2.6% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 3.7% per year. 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.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think China Electronics Optics Valley Union Holding is a great stock to add to your portfolio if income is your focus.

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. To that end, China Electronics Optics Valley Union Holding has 4 warning signs (and 1 which is potentially serious) 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.