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 means the annual payment will be 2.2% of the current stock price, which is lower than the industry average.

See our latest analysis for SANVO Fine Chemicals Group

SANVO Fine Chemicals Group Is Paying Out More Than It Is Earning

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, SANVO Fine Chemicals Group was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. 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. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 119%, which is definitely a bit high to be sustainable going forward.

SANVO Fine Chemicals Group Is Still Building Its Track Record

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 means that it has been growing its distributions at 5.5% per annum 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

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. SANVO Fine Chemicals Group's EPS has fallen by approximately 23% per year during the past three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about SANVO Fine Chemicals Group's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for SANVO Fine Chemicals Group that investors should take into consideration. 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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