The board of Shanghai Pioneer Holding Ltd (HKG:1345) has announced that it will be paying its dividend of CN¥0.056 on the 16th of June, an increased payment from last year's comparable dividend. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.
Shanghai Pioneer Holding's Payment Could Potentially Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Shanghai Pioneer Holding was paying out 74% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.
Looking forward, earnings per share could rise by 8.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 67% by next year, which is in a pretty sustainable range.
See our latest analysis for Shanghai Pioneer Holding
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.17 in 2015, and the most recent fiscal year payment was CN¥0.104. The dividend has shrunk at around 4.8% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
Shanghai Pioneer Holding Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Shanghai Pioneer Holding has impressed us by growing EPS at 8.7% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Shanghai Pioneer Holding's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Shanghai Pioneer Holding has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. Taking the debate a bit further, we've identified 1 warning sign for Shanghai Pioneer Holding that investors need to be conscious of moving forward. 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.