Guangdong Zhongsheng Pharmaceutical (SZSE:002317) Has Affirmed Its Dividend Of CN¥0.20

Guangdong Zhongsheng Pharmaceutical Co., Ltd. (SZSE:002317) has announced that it will pay a dividend of CN¥0.20 per share on the 23rd of May. This payment means the dividend yield will be 1.4%, which is below the average for the industry.

View our latest analysis for Guangdong Zhongsheng Pharmaceutical

Guangdong Zhongsheng Pharmaceutical's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

Over the next year, EPS is forecast to expand by 42.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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 dividend has gone from CN¥0.125 total annually to CN¥0.20. This means that it has been growing its distributions at 4.8% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Guangdong Zhongsheng Pharmaceutical's EPS has fallen by approximately 17% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Guangdong Zhongsheng Pharmaceutical (of which 1 is concerning!) you should know about. Is Guangdong Zhongsheng Pharmaceutical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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