Shijiazhuang Yiling Pharmaceutical (SZSE:002603) Has Announced That Its Dividend Will Be Reduced To CN¥0.30

Shijiazhuang Yiling Pharmaceutical Co., Ltd.'s (SZSE:002603) dividend is being reduced from last year's payment covering the same period to CN¥0.30 on the 19th of July. However, the dividend yield of 1.9% still remains in a typical range for the industry.

View our latest analysis for Shijiazhuang Yiling Pharmaceutical

Shijiazhuang Yiling Pharmaceutical's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, Shijiazhuang Yiling Pharmaceutical was paying out 110% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from CN¥0.0357 total annually to CN¥0.30. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. 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.

Dividend Growth May Be Hard To Achieve

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. Shijiazhuang Yiling Pharmaceutical has seen earnings per share falling at 4.8% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We're Not Big Fans Of Shijiazhuang Yiling Pharmaceutical's Dividend

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Shijiazhuang Yiling Pharmaceutical (of which 1 can't be ignored!) you should know about. Is Shijiazhuang Yiling Pharmaceutical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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