Jilin Province Chuncheng Heating (HKG:1853) Is Paying Out A Larger Dividend Than Last Year

Jilin Province Chuncheng Heating Company Limited (HKG:1853) has announced that it will be increasing its dividend on the 8th of July to HK$0.14, which will be 14% higher than last year. This takes the dividend yield from 7.8% to 8.1%, which shareholders will be pleased with.

View our latest analysis for Jilin Province Chuncheng Heating

Jilin Province Chuncheng Heating's Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, Jilin Province Chuncheng Heating is earning enough to cover the payment, but the it makes up 106% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 4.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

Jilin Province Chuncheng Heating's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The first annual payment during the last 2 years was CN¥0.17 in 2020, and the most recent fiscal year payment was CN¥0.12. This works out to a decline of approximately 32% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Jilin Province Chuncheng Heating May Find It Hard To Grow The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings have grown at around 4.8% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 4.8% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Jilin Province Chuncheng Heating is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Jilin Province Chuncheng Heating has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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