Simcere Pharmaceutical Group (HKG:2096) Has Announced A Dividend Of HK$0.18

The board of Simcere Pharmaceutical Group Limited (HKG:2096) has announced that it will pay a dividend of HK$0.18 per share on the 15th of July. This makes the dividend yield 3.7%, which will augment investor returns quite nicely.

Check out our latest analysis for Simcere Pharmaceutical Group

Simcere Pharmaceutical Group Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Simcere Pharmaceutical Group was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 37.2% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 98%, which could put the dividend under pressure if earnings don't start to improve.

Simcere Pharmaceutical Group Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Simcere Pharmaceutical Group has impressed us by growing EPS at 31% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Simcere Pharmaceutical Group's payments, as there could be some issues with sustaining them into the future. While Simcere Pharmaceutical Group is earning enough to cover the payments, the cash flows are lacking. 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 1 warning sign for Simcere Pharmaceutical Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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