Kingworld Medicines Group (HKG:1110) Is Increasing Its Dividend To CN¥0.0247

The board of Kingworld Medicines Group Limited (HKG:1110) has announced that the dividend on 30th of June will be increased to CN¥0.0247, which will be 3.3% higher than last year's payment of CN¥0.0239 which covered the same period. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Kingworld Medicines Group

Kingworld Medicines Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Kingworld Medicines Group was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Unless the company can turn things around, EPS could fall by 14.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 73%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.0234 in 2013, and the most recent fiscal year payment was CN¥0.0216. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Kingworld Medicines Group's earnings per share has shrunk at 15% a year over 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.

Our Thoughts On Kingworld Medicines Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Kingworld Medicines Group's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 5 warning signs for Kingworld Medicines Group you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.