Dawnrays Pharmaceutical (Holdings) (HKG:2348) Has Announced A Dividend Of CN¥0.065

The board of Dawnrays Pharmaceutical (Holdings) Limited (HKG:2348) has announced that it will pay a dividend on the 12th of June, with investors receiving CN¥0.065 per share. This means the annual payment is 6.7% of the current stock price, which is above the average for the industry.

See our latest analysis for Dawnrays Pharmaceutical (Holdings)

Dawnrays Pharmaceutical (Holdings)'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. Before making this announcement, Dawnrays Pharmaceutical (Holdings) was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 2.5% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CN¥0.0273 in 2014, and the most recent fiscal year payment was CN¥0.0737. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dawnrays Pharmaceutical (Holdings) May Find It Hard To Grow The Dividend

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. Earnings have grown at around 2.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Dawnrays Pharmaceutical (Holdings) has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Dawnrays Pharmaceutical (Holdings)'s Dividend

Overall, we think that Dawnrays Pharmaceutical (Holdings) could make a reasonable income stock, even though it did cut the dividend this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Dawnrays Pharmaceutical (Holdings) that investors should know about before committing capital to this stock. Is Dawnrays 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.