United Strength Power Holdings' (HKG:2337) Dividend Is Being Reduced To CN¥0.04

United Strength Power Holdings Limited (HKG:2337) has announced that on 18th of July, it will be paying a dividend ofCN¥0.04, which a reduction from last year's comparable dividend. This means that the annual payment is 2.3% of the current stock price, which is lower than what the rest of the industry is paying.

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 United Strength Power Holdings' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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United Strength Power Holdings' Projected Earnings Seem Likely To Cover Future Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, United Strength Power Holdings was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 14.9% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 23%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

See our latest analysis for United Strength Power Holdings

United Strength Power Holdings' Dividend Has Lacked Consistency

It's comforting to see that United Strength Power Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the dividend has gone from CN¥0.0399 total annually to CN¥0.0373. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been sinking by 15% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for United Strength Power Holdings (of which 2 are a bit unpleasant!) you should know about. Is United Strength Power Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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