The board of Fufeng Group Limited (HKG:546) has announced that it will pay a dividend of CN¥0.22 per share on the 27th of June. Based on this payment, the dividend yield will be 6.2%, which is lower than the average for the industry.
Fufeng Group's Payment Could Potentially Have Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Fufeng 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.
The next year is set to see EPS grow by 53.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Fufeng Group
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.063 in 2015, and the most recent fiscal year payment was CN¥0.367. This means that it has been growing its distributions at 19% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Fufeng Group has seen EPS rising for the last five years, at 16% per annum. Fufeng Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Fufeng Group Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Fufeng Group has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. For example, we've picked out 1 warning sign for Fufeng Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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