The board of Yue Yuen Industrial (Holdings) Limited (HKG:551) has announced that it will pay a dividend of $0.70 per share on the 21st of June. This means the annual payment is 7.9% of the current stock price, which is above the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Yue Yuen Industrial (Holdings)'s stock price has increased by 39% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Yue Yuen Industrial (Holdings)

Yue Yuen Industrial (Holdings) Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Yue Yuen Industrial (Holdings) was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next 12 months is set to see EPS grow by 41.9%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.161 in 2014, and the most recent fiscal year payment was $0.115. This works out to be a decline of approximately 3.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, Yue Yuen Industrial (Holdings)'s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Yue Yuen Industrial (Holdings) 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Yue Yuen Industrial (Holdings) that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.