The board of Zhongzhi Pharmaceutical Holdings Limited (HKG:3737) has announced that it will be paying its dividend of CN¥0.05 on the 19th of June, an increased payment from last year's comparable dividend. This takes the dividend yield to 5.5%, which shareholders will be pleased with.
Zhongzhi Pharmaceutical Holdings' Projected Earnings Seem Likely To Cover Future Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Zhongzhi Pharmaceutical 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.
EPS is set to fall by 4.3% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 51%, which is definitely feasible to continue.
See our latest analysis for Zhongzhi Pharmaceutical Holdings
Zhongzhi Pharmaceutical Holdings' 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. Since 2016, the dividend has gone from CN¥0.0294 total annually to CN¥0.0467. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Zhongzhi Pharmaceutical Holdings might have put its house in order since then, but we remain cautious.
Dividend Growth May Be Hard To Achieve
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Zhongzhi Pharmaceutical Holdings' earnings per share has shrunk at approximately 4.3% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Zhongzhi Pharmaceutical Holdings' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Zhongzhi Pharmaceutical Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.