CSPC Pharmaceutical Group's (HKG:1093) Dividend Will Be CN¥0.14

The board of CSPC Pharmaceutical Group Limited (HKG:1093) has announced that it will pay a dividend on the 26th of June, with investors receiving CN¥0.14 per share. This makes the dividend yield 4.5%, which is above the industry average.

Check out our latest analysis for CSPC Pharmaceutical Group

CSPC Pharmaceutical Group's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by CSPC Pharmaceutical Group's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 30.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was CN¥0.0406, compared to the most recent full-year payment of CN¥0.258. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. CSPC Pharmaceutical Group 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 Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. CSPC Pharmaceutical Group has seen EPS rising for the last five years, at 14% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

CSPC Pharmaceutical Group Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for CSPC Pharmaceutical 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.