Suzhou Fushilai Pharmaceutical (SZSE:301258) Is Increasing Its Dividend To CN¥0.6005

Suzhou Fushilai Pharmaceutical Co., Ltd. (SZSE:301258) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of June to CN¥0.6005. This makes the dividend yield 2.3%, which is above the industry average.

See our latest analysis for Suzhou Fushilai Pharmaceutical

Suzhou Fushilai Pharmaceutical's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Suzhou Fushilai Pharmaceutical's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Looking forward, could fall by 12.5% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 89% in the next 12 months which is on the higher end of the range we would say is sustainable.

Suzhou Fushilai Pharmaceutical Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2022, the dividend has gone from CN¥0.40 total annually to CN¥0.60. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Suzhou Fushilai Pharmaceutical has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 12% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Suzhou Fushilai Pharmaceutical's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Suzhou Fushilai Pharmaceutical you should be aware of, and 2 of them are significant. 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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