Zhuhai Rundu Pharmaceutical's (SZSE:002923) Dividend Is Being Reduced To CN¥0.20

Zhuhai Rundu Pharmaceutical Co., Ltd. (SZSE:002923) is reducing its dividend from last year's comparable payment to CN¥0.20 on the 31st of May. However, the dividend yield of 2.3% is still a decent boost to shareholder returns.

See our latest analysis for Zhuhai Rundu Pharmaceutical

Zhuhai Rundu Pharmaceutical Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Zhuhai Rundu Pharmaceutical's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 9.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 116%, which could put the dividend under pressure if earnings don't start to improve.

Zhuhai Rundu Pharmaceutical Doesn't Have A Long Payment History

It is great to see that Zhuhai Rundu Pharmaceutical has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of CN¥0.214 in 2018 to the most recent total annual payment of CN¥0.25. This implies that the company grew its distributions at a yearly rate of about 2.6% over that duration. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Zhuhai Rundu Pharmaceutical has seen earnings per share falling at 9.2% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Zhuhai Rundu Pharmaceutical's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Zhuhai Rundu Pharmaceutical 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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