China Yongda Automobiles Services Holdings (HKG:3669) Is Paying Out A Larger Dividend Than Last Year

China Yongda Automobiles Services Holdings Limited (HKG:3669) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of October to CN¥0.0768. Based on this payment, the dividend yield for the company will be 6.6%, which is fairly typical for the industry.

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Estimates Indicate China Yongda Automobiles Services Holdings' Dividend Coverage Likely To Improve

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. China Yongda Automobiles Services Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 1.3%, which makes us pretty comfortable with the sustainability of the dividend.

See our latest analysis for China Yongda Automobiles Services Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of CN¥0.10 in 2015 to the most recent total annual payment of CN¥0.128. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

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 47% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

China Yongda Automobiles Services Holdings' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think China Yongda Automobiles Services Holdings will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for China Yongda Automobiles Services Holdings 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.