Shougang Fushan Resources Group Limited (HKG: 639) the dividend will increase to HK $ 0.08 on October 28. This brings the dividend yield from 6.3% to 6.3%, which shareholders will be delighted with.
See our latest review for Shougang Fushan Resources Group
Shougang Fushan Resources Group payment has strong earnings coverage
If the payments are not sustainable, a high return for a few years will not matter much. At the time of the last dividend payment, Shougang Fushan Resources Group was paying a very large portion of its earnings and 234% of the cash flow. This is certainly a risk factor, as reduced cash flow could force the company to pay a lower dividend.
Next year, EPS is expected to increase by 51.4%. Assuming the dividend continues on recent trends, we think the payout ratio could be 59% by next year, which is in a fairly sustainable range.
Although the company has a long history of dividends, it has been cut at least once in the past 10 years. The first annual payment in the past 10 years was HK $ 0.15 in 2011, and the most recent year’s payment was HK $ 0.17. This means that he increased his distributions by 1.3% per year during this period. It’s encouraging to see some dividend growth, but the dividend has been reduced at least once, and the magnitude of the reduction would eliminate most of the growth anyway, making it less attractive as a income investment.
The dividend seems likely to increase
Since the dividend has been reduced in the past, we need to check if profits are increasing and if this could lead to higher dividends in the future. We are encouraged to see that Shougang Fushan Resources Group has increased its earnings per share by 24% per year over the past five years. The fast growing profits are great, but this can rarely be sustained without reinvestment in the business, which Shougang Fushan Resources Group has not done.
Overall, we still like to see the dividend increase, but we don’t think Shougang Fushan Resources Group will be a great income security. While the low payout rate is a redemption feature, this is offset by the minimum amount of money to cover the payouts. This company is not in the top bracket of income providing stocks.
Firms with a stable dividend policy will likely benefit from greater investor interest than those with a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. For example, we have selected 2 warning signs for Shougang Fushan Resources Group that investors should be aware of before committing capital to this stock. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.
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