Central China New Life's (HKG:9983) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Central China New Life Limited (HKG:9983) has announced that it will be increasing its dividend on the 25th of May to HK$0.34. This will take the annual payment from 7.5% to 11% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Central China New Life

Central China New Life's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Central China New Life's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 35.1%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 90%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Central China New Life Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2020, the dividend has gone from CN¥0.12 to CN¥0.26. This means that it has been growing its distributions at 49% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Central China New Life has grown earnings per share at 40% per year over the past five years. Central China New Life is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Central China New Life's Dividend

Overall, a dividend increase is always good, and we think that Central China New Life is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Central China New Life that investors should take into consideration. Is Central China New Life not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.