Sunflower Pharmaceutical GroupLtd's (SZSE:002737) Shareholders Will Receive A Bigger Dividend Than Last Year

Sunflower Pharmaceutical Group Co.,Ltd (SZSE:002737) will increase its dividend from last year's comparable payment on the 14th of June to CN¥1.50. This will take the annual payment to 5.0% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Sunflower Pharmaceutical GroupLtd

Sunflower Pharmaceutical GroupLtd Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Sunflower Pharmaceutical GroupLtd's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 122% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 10.9% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 96%, which probably can't continue without starting to put some pressure on the balance sheet.

Sunflower Pharmaceutical GroupLtd's Dividend Has Lacked Consistency

Looking back, Sunflower Pharmaceutical GroupLtd's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was CN¥0.0875 in 2015, and the most recent fiscal year payment was CN¥1.50. This works out to be a compound annual growth rate (CAGR) of approximately 37% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Sunflower Pharmaceutical GroupLtd Might Find It Hard To Grow Its Dividend

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. Sunflower Pharmaceutical GroupLtd has seen EPS rising for the last five years, at 11% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Sunflower Pharmaceutical GroupLtd will make a great income stock. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We don't think Sunflower Pharmaceutical GroupLtd is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 1 warning sign for Sunflower Pharmaceutical GroupLtd that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.