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 6.3% 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 74% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Yue Yuen Industrial (Holdings)

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Yue Yuen Industrial (Holdings) was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Earnings per share is forecast to rise by 46.2% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to 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 $0.142 in 2014, and the most recent fiscal year payment was $0.115. This works out to be a decline of approximately 2.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Yue Yuen Industrial (Holdings) May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Yue Yuen Industrial (Holdings)'s EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Yue Yuen Industrial (Holdings)'s Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

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 instance, we've picked out 2 warning signs for Yue Yuen Industrial (Holdings) that investors should take into consideration. Is Yue Yuen Industrial (Holdings) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.