China Pioneer Pharma Holdings (HKG:1345) Has Announced That Its Dividend Will Be Reduced To HK$0.056

China Pioneer Pharma Holdings Limited (HKG:1345) has announced it will be reducing its dividend payable on the 1st of January to HK$0.056. The yield is still above the industry average at 8.3%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that China Pioneer Pharma Holdings' stock price has increased by 63% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for China Pioneer Pharma Holdings

China Pioneer Pharma Holdings Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 145% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

If the company can't turn things around, EPS could fall by 2.6% 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.

China Pioneer Pharma Holdings' Dividend Has Lacked Consistency

China Pioneer Pharma Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from CN¥0.11 in 2014 to the most recent annual payment of CN¥0.093. Doing the maths, this is a decline of about 2.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. China Pioneer Pharma Holdings has seen earnings per share falling at 2.6% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

China Pioneer Pharma Holdings' Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for China Pioneer Pharma Holdings you should be aware of, and 1 of them is potentially serious. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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