Enwei Pharmaceutical's (SZSE:301331) Dividend Will Be Reduced To CN¥0.80

Enwei Pharmaceutical Co., Ltd. (SZSE:301331) is reducing its dividend from last year's comparable payment to CN¥0.80 on the 23rd of May. This means the annual payment is 2.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Enwei Pharmaceutical

Enwei Pharmaceutical Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Enwei Pharmaceutical's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the company can't turn things around, EPS could fall by 16.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 160%, which could put the dividend under pressure if earnings don't start to improve.

Enwei Pharmaceutical Is Still Building Its Track Record

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Enwei Pharmaceutical's EPS has fallen by approximately 17% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Enwei Pharmaceutical has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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