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

United Strength Power Holdings Limited's (HKG:2337) dividend is being reduced from last year's payment covering the same period to CN¥0.04 on the 18th of July. This means that the dividend yield is 2.1%, which is a bit low when comparing to other companies in the industry.

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 32% 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. Based on the last payment, United Strength Power Holdings was paying only paying out a fraction of earnings, but the payment was a massive 408% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

EPS is set to fall by 14.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 23%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for United Strength Power Holdings

United Strength Power Holdings' 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. Since 2018, the dividend has gone from CN¥0.0399 total annually to CN¥0.0366. Doing the maths, this is a decline of about 1.3% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. 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.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for United Strength Power Holdings (2 are significant!) that you should be aware of before investing. 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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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.