Jilin Province Chuncheng Heating Company Limited's (HKG:1853) dividend is being reduced to HK$0.12 on the 9th of July. This means that the annual payment will be 5.6% of the current stock price, which is in line with the average for the industry.
Jilin Province Chuncheng Heating's Earnings Easily Cover the Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Jilin Province Chuncheng Heating's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS could expand by 11.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.
Jilin Province Chuncheng Heating Is Still Building Its Track Record
The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Looks Likely To Grow
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's encouraging to see Jilin Province Chuncheng Heating has been growing its earnings per share at 11% a year over the past five years. Jilin Province Chuncheng Heating definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Jilin Province Chuncheng Heating Looks Like A Great Dividend Stock
In general, we don't like to see the dividend being cut, especially when the company has such high potential like Jilin Province Chuncheng Heating does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. Taking the debate a bit further, we've identified 3 warning signs for Jilin Province Chuncheng Heating that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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