Tsaker New Energy Tech Co., Limited (HKG:1986) is reducing its dividend from last year’s comparable payment to CN¥0.032 on the 6th of November. This means that the annual payment will be 8.5% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Tsaker New Energy Tech
Tsaker New Energy Tech’s Dividend Is Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last dividend, Tsaker New Energy Tech is earning enough to cover the payment, but then it makes up 890% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Over the next year, EPS could expand by 0.2% if recent trends continue. If the dividend continues on this path, the payout ratio could be 59% by next year, which we think can be pretty sustainable going forward.
Tsaker New Energy Tech’s Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn’t argument against the possibility of it cutting in the future. The dividend has gone from an annual total of CN¥0.031 in 2016 to the most recent total annual payment of CN¥0.0917. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend’s Growth Prospects Are Limited
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Although it’s important to note that Tsaker New Energy Tech’s earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn’t necessarily bad, but we wouldn’t expect rapid dividend growth in the future.
Our Thoughts On Tsaker New Energy Tech’s Dividend
In summary, dividends being cut isn’t ideal, however it can bring the payment into a more sustainable range. While Tsaker New Energy Tech is earning enough to cover the payments, the cash flows are lacking. We don’t think Tsaker New Energy Tech is a great stock to add to your portfolio if income is your focus.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we’ve identified 2 warning signs for Tsaker New Energy Tech (1 is potentially serious!) that you should be aware of before investing. 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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Find out whether Tsaker New Energy Tech is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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