Hunan Jiudian Pharmaceutical (SZSE:300705) Is Increasing Its Dividend To CN¥0.321

Hunan Jiudian Pharmaceutical Co., Ltd. (SZSE:300705) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of May to CN¥0.321. This takes the annual payment to 0.9% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Hunan Jiudian Pharmaceutical

Hunan Jiudian Pharmaceutical's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Hunan Jiudian Pharmaceutical was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 84.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Hunan Jiudian Pharmaceutical's Dividend Has Lacked Consistency

Hunan Jiudian Pharmaceutical has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2018, the dividend has gone from CN¥0.0429 total annually to CN¥0.321. This implies that the company grew its distributions at a yearly rate of about 40% 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Hunan Jiudian Pharmaceutical has been growing its earnings per share at 43% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Hunan Jiudian Pharmaceutical Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Hunan Jiudian Pharmaceutical is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Taking the debate a bit further, we've identified 1 warning sign for Hunan Jiudian Pharmaceutical that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.