ChengDa Pharmaceuticals (SZSE:301201) Will Pay A Smaller Dividend Than Last Year

ChengDa Pharmaceuticals Co., Ltd. (SZSE:301201) has announced that on 10th of July, it will be paying a dividend ofCN¥0.20, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 1.1%, which is lower than the average for the industry.

See our latest analysis for ChengDa Pharmaceuticals

ChengDa Pharmaceuticals' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. ChengDa Pharmaceuticals is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 56.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.

ChengDa Pharmaceuticals' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2022, the annual payment back then was CN¥0.281, compared to the most recent full-year payment of CN¥0.20. The dividend has fallen 29% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. We are encouraged to see that ChengDa Pharmaceuticals has grown earnings per share at 57% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On ChengDa Pharmaceuticals' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While ChengDa Pharmaceuticals is earning enough to cover the payments, the cash flows are lacking. We don't think ChengDa Pharmaceuticals is a great stock to add to your portfolio if income is your focus.

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 example, we've identified 2 warning signs for ChengDa Pharmaceuticals (1 shouldn't be ignored!) 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.

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.

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