The board of ZTO Express (Cayman) Inc. (NYSE:ZTO) has announced that it will pay a dividend on the 29th of April, with investors receiving CN¥0.34 per share. The dividend yield will be in the average range for the industry at 3.5%.

ZTO Express (Cayman)'s Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, ZTO Express (Cayman) 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.

The next year is set to see EPS grow by 47.9%. If the dividend continues on this path, the payout ratio could be 4.2% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for ZTO Express (Cayman)

ZTO Express (Cayman) Is Still Building Its Track Record

ZTO Express (Cayman)'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. The annual payment during the last 6 years was CN¥1.61 in 2019, and the most recent fiscal year payment was CN¥5.06. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. 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.

We Could See ZTO Express (Cayman)'s Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. ZTO Express (Cayman) has seen EPS rising for the last five years, at 8.8% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

ZTO Express (Cayman) Looks Like A Great Dividend Stock

Overall, we think that ZTO Express (Cayman) could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for ZTO Express (Cayman) that investors should take into consideration. Is ZTO Express (Cayman) 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.