Guangzhou Baiyunshan Pharmaceutical Holdings (HKG:874) Is Increasing Its Dividend To CN¥0.8227

Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (HKG:874) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of July to CN¥0.8227. This makes the dividend yield about the same as the industry average at 3.6%.

View our latest analysis for Guangzhou Baiyunshan Pharmaceutical Holdings

Guangzhou Baiyunshan Pharmaceutical Holdings' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Guangzhou Baiyunshan Pharmaceutical Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 13.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 42%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from CN¥0.23 total annually to CN¥0.749. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Guangzhou Baiyunshan Pharmaceutical Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Guangzhou Baiyunshan Pharmaceutical Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year. If Guangzhou Baiyunshan Pharmaceutical Holdings is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Guangzhou Baiyunshan Pharmaceutical Holdings' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Guangzhou Baiyunshan Pharmaceutical Holdings that investors should take into consideration. Is Guangzhou Baiyunshan Pharmaceutical Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.