Luzhou Xinglu Water (Group) (HKG:2281) Will Pay A Smaller Dividend Than Last Year

Luzhou Xinglu Water (Group) Co., Ltd. (HKG:2281) is reducing its dividend from last year's comparable payment to CN¥0.044 on the 31st of July. This payment takes the dividend yield to 6.5%, which only provides a modest boost to overall returns.

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Luzhou Xinglu Water (Group)'s Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Luzhou Xinglu Water (Group) was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 1.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 20%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Luzhou Xinglu Water (Group)

Luzhou Xinglu Water (Group)'s Dividend Has Lacked Consistency

It's comforting to see that Luzhou Xinglu Water (Group) has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of CN¥0.08 in 2018 to the most recent total annual payment of CN¥0.04. The dividend has shrunk at around 9.4% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Luzhou Xinglu Water (Group) hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Luzhou Xinglu Water (Group)'s Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. We don't think Luzhou Xinglu Water (Group) is a great stock to add to your portfolio if income is your focus.

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. To that end, Luzhou Xinglu Water (Group) has 4 warning signs (and 2 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.