Luzhou Xinglu Water (Group)'s (HKG:2281) Dividend Will Be Reduced To HK$0.059

Luzhou Xinglu Water (Group) Co., Ltd.'s (HKG:2281) dividend is being reduced to HK$0.059 on the 29th of July. However, the dividend yield of 6.4% still remains in a typical range for the industry.

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

Luzhou Xinglu Water (Group)'s Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Luzhou Xinglu Water (Group) was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 7.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

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

Even in its short history, we have seen the dividend cut. Since 2018, the first annual payment was CN¥0.08, compared to the most recent full-year payment of CN¥0.05. The dividend has fallen 38% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

We Could See Luzhou Xinglu Water (Group)'s Dividend Growing

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Luzhou Xinglu Water (Group) has seen EPS rising for the last five years, at 7.3% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. Just as an example, we've come across 2 warning signs for Luzhou Xinglu Water (Group) you should be aware of, and 1 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield 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.