Hualan Biological Engineering's (SZSE:002007) Dividend Will Be CN¥0.30

The board of Hualan Biological Engineering Inc. (SZSE:002007) has announced that it will pay a dividend on the 14th of June, with investors receiving CN¥0.30 per share. Based on this payment, the dividend yield will be 1.7%, which is fairly typical for the industry.

See our latest analysis for Hualan Biological Engineering

Hualan Biological Engineering's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Hualan Biological Engineering was paying a whopping 159% as a dividend, but this only made up 39% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

The next year is set to see EPS grow by 58.5%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.0321, compared to the most recent full-year payment of CN¥0.30. This means that it has been growing its distributions at 25% 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 3.0% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Hualan Biological Engineering's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hualan Biological Engineering's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Hualan Biological Engineering that you should be aware of before investing. Is Hualan Biological Engineering not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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