Luzhou Xinglu Water (Group) (HKG:2281) Has Announced A Dividend Of CN¥0.055

The board of Luzhou Xinglu Water (Group) Co., Ltd. (HKG:2281) has announced that it will pay a dividend on the 28th of July, with investors receiving CN¥0.055 per share. This means the dividend yield will be fairly typical at 7.5%.

Check out our latest analysis for Luzhou Xinglu Water (Group)

Luzhou Xinglu Water (Group)'s Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Luzhou Xinglu Water (Group) was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 7.9% over the next 12 months. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Luzhou Xinglu Water (Group)'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 5 years was CN¥0.08 in 2018, and the most recent fiscal year payment was CN¥0.05. Doing the maths, this is a decline of about 9.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Luzhou Xinglu Water (Group) Could Grow Its Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Luzhou Xinglu Water (Group) has seen EPS rising for the last five years, at 7.9% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Luzhou Xinglu Water (Group) 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Luzhou Xinglu Water (Group) (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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