Precision Tsugami (China) (HKG:1651) Will Pay A Larger Dividend Than Last Year At CN¥0.50

Precision Tsugami (China) Corporation Limited's (HKG:1651) dividend will be increasing from last year's payment of the same period to CN¥0.50 on 12th of September. This will take the annual payment to 4.7% of the stock price, which is above what most companies in the industry pay.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Precision Tsugami (China)'s Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Precision Tsugami (China)'s dividend was only 43% of earnings, however it was paying out 111% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 116.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Precision Tsugami (China)

Precision Tsugami (China) Doesn't Have A Long Payment History

Precision Tsugami (China)'s dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2018, the annual payment back then was CN¥0.138, compared to the most recent full-year payment of CN¥0.913. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Precision Tsugami (China) has grown earnings per share at 38% per year over the past five years. Precision Tsugami (China) is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Precision Tsugami (China)'s Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Precision Tsugami (China) is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Precision Tsugami (China) has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Precision Tsugami (China) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.