Zhejiang Xinguang Pharmaceutical (SZSE:300519) Has Announced That Its Dividend Will Be Reduced To CN¥0.40

Zhejiang Xinguang Pharmaceutical Co., Ltd. (SZSE:300519) is reducing its dividend from last year's comparable payment to CN¥0.40 on the 29th of May. The yield is still above the industry average at 3.1%.

Check out our latest analysis for Zhejiang Xinguang Pharmaceutical

Zhejiang Xinguang Pharmaceutical Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 100% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Looking forward, EPS could fall by 8.2% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 135%, which could put the dividend in jeopardy if the company's earnings don't improve.

Zhejiang Xinguang Pharmaceutical's Dividend Has Lacked Consistency

It's comforting to see that Zhejiang Xinguang Pharmaceutical has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was CN¥0.25 in 2017, and the most recent fiscal year payment was CN¥0.40. This means that it has been growing its distributions at 6.9% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Zhejiang Xinguang Pharmaceutical's EPS has declined at around 8.2% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

We're Not Big Fans Of Zhejiang Xinguang Pharmaceutical's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Zhejiang Xinguang Pharmaceutical that investors should take into consideration. Is Zhejiang Xinguang Pharmaceutical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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