China Lilang Limited (HKG:1234) cut its dividend to HK$0.16 on May 24. This means that the annual payout is 8.9% of the current share price, which is above the industry average.
Check out our latest analysis for China Lilang
China Lilang’s dividend is well covered by earnings
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. The last payment was quite easily covered by income, but it represented 114% of cash flow. While the company may be more focused on returning cash to shareholders than growing the business at this time, we believe that such a high cash payout ratio could expose the dividend to a reduction if the company was having difficulties.
Over the next year, EPS is expected to increase by 53.7%. If the dividend continues to follow recent trends, we estimate the payout ratio to be 57%, which is within the range that allows us to be comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. Since 2012, the dividend has increased from CN¥0.17 to CN¥0.28. This equates to a compound annual growth rate (CAGR) of approximately 4.9% per year during this period. The dividend has had some fluctuations in the past, so even though the dividend has been increased this year, we have to remember that it has been reduced in the past.
China Lilang could struggle to grow the dividend
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. China Lilang has seen earnings per share fall 2.6% annually over the past five years. A slight decline in earnings is not great, and it is unlikely that the dividend will increase in the future unless this trend can be reversed. Earnings are expected to rise over the next 12 months and if that happens we might still be a bit cautious until it becomes a trend.
China Lilang’s dividend does not look sustainable
Overall, it’s not great to see that the dividend has been reduced, but it could be because the payouts were a bit high before. While China Lilang earns enough to cover payments, cash flow is lacking. Overall, we don’t think this company has the makings of a good income stock.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. For example, we chose 2 warning signs for China Lilang that investors should consider. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.