PharmaBlock Sciences (Nanjing) (SZSE:300725) Is Increasing Its Dividend To CN¥0.31

The board of PharmaBlock Sciences (Nanjing), Inc. (SZSE:300725) has announced that it will be paying its dividend of CN¥0.31 on the 14th of June, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.0%, which is below the industry average.

View our latest analysis for PharmaBlock Sciences (Nanjing)

PharmaBlock Sciences (Nanjing)'s Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, PharmaBlock Sciences (Nanjing) was paying a whopping 106% as a dividend, but this only made up 33% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 101.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.

PharmaBlock Sciences (Nanjing)'s Dividend Has Lacked Consistency

Looking back, PharmaBlock Sciences (Nanjing)'s dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the annual payment back then was CN¥0.0789, compared to the most recent full-year payment of CN¥0.31. This means that it has been growing its distributions at 26% per annum over that time. PharmaBlock Sciences (Nanjing) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

PharmaBlock Sciences (Nanjing) May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 3.9% a year for the past five years, which isn't massive but still better than seeing them shrink. If PharmaBlock Sciences (Nanjing) is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On PharmaBlock Sciences (Nanjing)'s Dividend

In summary, while it's always good to see the dividend being raised, we don't think PharmaBlock Sciences (Nanjing)'s payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for PharmaBlock Sciences (Nanjing) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.