CSPC Pharmaceutical Group Limited (HKG:1093) has announced that on 18th of July, it will be paying a dividend ofCN¥0.10, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 4.2%.
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 CSPC Pharmaceutical Group's stock price has increased by 41% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Our free stock report includes 1 warning sign investors should be aware of before investing in CSPC Pharmaceutical Group. Read for free now.CSPC Pharmaceutical Group'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. The last dividend was quite easily covered by CSPC Pharmaceutical Group's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 26.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.
Check out our latest analysis for CSPC Pharmaceutical Group
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from CN¥0.0416 total annually to CN¥0.243. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
CSPC Pharmaceutical Group May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.0% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 4.0% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
In Summary
Overall, we think that CSPC Pharmaceutical Group could make a reasonable income stock, even though it did cut the dividend this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
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 1 warning sign for CSPC Pharmaceutical Group that investors should take into consideration. 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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