Jilin Aodong Pharmaceutical Group (SZSE:000623) Is Increasing Its Dividend To CN¥0.60

Jilin Aodong Pharmaceutical Group Co., Ltd. (SZSE:000623) has announced that it will be increasing its dividend from last year's comparable payment on the 9th of July to CN¥0.60. This will take the dividend yield to an attractive 4.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Jilin Aodong Pharmaceutical Group

Jilin Aodong Pharmaceutical Group's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Jilin Aodong Pharmaceutical Group was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 38.9% over the next year. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CN¥0.0769 in 2014, and the most recent fiscal year payment was CN¥0.60. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Jilin Aodong Pharmaceutical Group May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Jilin Aodong Pharmaceutical Group has seen earnings per share falling at 2.8% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Jilin Aodong Pharmaceutical Group's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Jilin Aodong Pharmaceutical Group that investors should know about before committing capital to this stock. 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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