SANVO Fine Chemicals Group (HKG:301) Is Due To Pay A Dividend Of HK$0.03

The board of SANVO Fine Chemicals Group Limited (HKG:301) has announced that it will pay a dividend of HK$0.03 per share on the 8th of July. This payment means the dividend yield will be 2.3%, which is below the average for the industry.

See our latest analysis for SANVO Fine Chemicals Group

SANVO Fine Chemicals Group Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

EPS is set to fall by 23.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 119%, which could put the dividend under pressure if earnings don't start to improve.

SANVO Fine Chemicals Group Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2020, the dividend has gone from CN¥0.022 to CN¥0.024. This works out to be a compound annual growth rate (CAGR) of approximately 5.5% a year over that time. SANVO Fine Chemicals Group has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. SANVO Fine Chemicals Group's earnings per share has shrunk at 23% a year over the past three 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, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While SANVO Fine Chemicals Group is earning enough to cover the payments, the cash flows are lacking. We don't think SANVO Fine Chemicals Group is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for SANVO Fine Chemicals Group that you should be aware of before investing. 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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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.