Zhejiang Xianju PharmaceuticalLtd (SZSE:002332) Will Pay A Dividend Of CN¥0.30

The board of Zhejiang Xianju Pharmaceutical Co.,Ltd. (SZSE:002332) has announced that it will pay a dividend of CN¥0.30 per share on the 5th of June. This means the annual payment is 2.5% of the current stock price, which is above the average for the industry.

View our latest analysis for Zhejiang Xianju PharmaceuticalLtd

Zhejiang Xianju PharmaceuticalLtd's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Zhejiang Xianju PharmaceuticalLtd was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 77% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 65.2%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

Zhejiang Xianju PharmaceuticalLtd Is Still Building Its Track Record

Zhejiang Xianju PharmaceuticalLtd's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2015, the annual payment back then was CN¥0.0667, compared to the most recent full-year payment of CN¥0.30. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Zhejiang Xianju PharmaceuticalLtd has impressed us by growing EPS at 11% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Zhejiang Xianju PharmaceuticalLtd's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Zhejiang Xianju PharmaceuticalLtd's payments, as there could be some issues with sustaining them into the future. While Zhejiang Xianju PharmaceuticalLtd is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Zhejiang Xianju PharmaceuticalLtd is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 1 warning sign for Zhejiang Xianju PharmaceuticalLtd that investors should know about before committing capital to this stock. Is Zhejiang Xianju PharmaceuticalLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.