Hengfeng Information Technology (SZSE:300605) will pay a dividend equivalent to 0.04 yuan

Board of directors Heng Feng Information Technology Co., Ltd. (SZSE:300605) announced that it will pay a dividend on July 3. Investors will receive 0.04 yuan per share, which means the annual payout will be 0.4% of the current share price, lower than the industry average.

View our latest analysis for Hengfeng Information Technology

Hengfeng Information Technology is not making enough profits to cover the payments

The dividend yield is a bit low, but dividend sustainability is also an important factor when evaluating an income stock. Based on the last dividend, earnings were actually less than the dividend, and the company was actually burning more cash than it earned. Paying such a large dividend relative to earnings while not generating any free cash flow would undoubtedly be difficult to sustain.

If recent trends continue, EPS is expected to decrease by 33.4% over the next 12 months.If dividends continue along recent trends, the trailing 12 month dividend payout ratio could be 148%, which is clearly a bit high to be sustainable going forward.

Hengfeng Information Technology’s dividends are inconsistent

It’s good to see that Hengfeng Information Technology has been paying a dividend over the last few years, however it has been cut at least once during that time. Just because the company has cut it once doesn’t mean it can’t cut it in the future. Dividends have increased from a total of RMB0.0257 per year in 2017 to a total of RMB0.04 per year in the most recent period. This means that the company has increased its dividends at a rate of approximately 6.5% per year over that period. It’s good to see dividends growing at a decent rate, however the dividend has been cut at least once in the past. Hengfeng Information Technology may have turned things around since then, but we remain cautious.

Dividend growth potential is shaky

Given that the dividend has been cut in the past, we need to see if earnings are growing and whether that could lead to increased dividends in the future. Hengfeng Information Technology’s earnings per share have fallen at 33% per year over the past five years. This sharp decline suggests the company is going through tough times, which may limit its ability to pay larger dividends each year going forward.

Not a big fan of Hengfeng Information Technology’s dividend

Overall, while some may be pleased that the dividend wasn’t cut, we think this may help Hengfeng Information Technology pay a more stable dividend in the future. It seems the company is stretching itself a bit to pay such a large dividend, but it doesn’t seem like it can pay consistently over the long term. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to prefer companies with a consistent and stable dividend policy over those with an erratic dividend policy. At the same time, there are other factors that readers should be aware of before putting their money into a stock. To that end, Hengfeng Information Technology 5 Warning Signs (And two are serious) I think you should know. Is Hengfeng Information Technology the opportunity you have been looking for? Please join us A selection of top dividend stocks.

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