Jafron BiomedicalLtd's (SZSE:300529) Dividend Will Be Reduced To CN¥0.40

Jafron Biomedical Co.,Ltd. (SZSE:300529) is reducing its dividend from last year's comparable payment to CN¥0.40 on the 31st of May. This means that the annual payment is 1.4% of the current stock price, which is lower than what the rest of the industry is paying.

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 Jafron BiomedicalLtd's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Jafron BiomedicalLtd

Jafron BiomedicalLtd's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Jafron BiomedicalLtd 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.

Looking forward, earnings per share is forecast to rise by 145.6% over the next year. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

Jafron BiomedicalLtd's Dividend Has Lacked Consistency

It's comforting to see that Jafron BiomedicalLtd has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the dividend has gone from CN¥0.105 total annually to CN¥0.40. This means that it has been growing its distributions at 21% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Jafron BiomedicalLtd has only grown its earnings per share at 4.0% per annum over the past five years. Growth of 4.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Jafron BiomedicalLtd 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.

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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.