3SBio Inc.'s (HKG:1530) investors are due to receive a payment of CN¥0.25 per share on 15th of August. Based on this payment, the dividend yield will be 2.0%, which is fairly typical 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 3SBio's stock price has increased by 102% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
3SBio's Future Dividend Projections Appear Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, 3SBio's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 42.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.
View our latest analysis for 3SBio
3SBio's Dividend Has Lacked Consistency
It's comforting to see that 3SBio has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was CN¥0.0547 in 2018, and the most recent fiscal year payment was CN¥0.233. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. 3SBio has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. 3SBio has impressed us by growing EPS at 18% per year over the past five years. 3SBio definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
3SBio Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 10 analysts we track are forecasting for 3SBio for free with public analyst estimates for the company. 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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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.