Dawnrays Pharmaceutical (Holdings) (HKG:2348) Will Pay A Dividend Of HK$0.015

The board of Dawnrays Pharmaceutical (Holdings) Limited (HKG:2348) has announced that it will pay a dividend of HK$0.015 per share on the 5th of October. This makes the dividend yield 7.1%, which will augment investor returns quite nicely.

View 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. But before making this announcement, Dawnrays Pharmaceutical (Holdings)'s earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

If the trend of the last few years continues, EPS will grow by 2.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was CN¥0.04, compared to the most recent full-year payment of CN¥0.054. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 2.9% per year. While EPS growth is quite low, Dawnrays Pharmaceutical (Holdings) has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Dawnrays Pharmaceutical (Holdings) has been making. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Dawnrays Pharmaceutical (Holdings) you should be aware of, and 1 of them shouldn't be ignored. We have also put together a list of global stocks with a solid dividend.

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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.
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