China Electronics Huada Technology's (HKG:85) Upcoming Dividend Will Be Larger Than Last Year's

China Electronics Huada Technology Company Limited (HKG:85) will increase its dividend from last year's comparable payment on the 28th of July to HK$0.08. This will take the dividend yield to an attractive 7.2%, providing a nice boost to shareholder returns.

View our latest analysis for China Electronics Huada Technology

China Electronics Huada Technology's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, China Electronics Huada Technology's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 19.3% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

China Electronics Huada Technology's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was HK$0.03 in 2014, and the most recent fiscal year payment was HK$0.08. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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. We are encouraged to see that China Electronics Huada Technology has grown earnings per share at 19% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like China Electronics Huada Technology's Dividend

Overall, a dividend increase is always good, and we think that China Electronics Huada Technology is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for China Electronics Huada Technology (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is China Electronics Huada Technology 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.