Dawnrays Pharmaceutical (Holdings) (HKG:2348) Will Pay A Dividend Of CN¥0.065

Dawnrays Pharmaceutical (Holdings) Limited (HKG:2348) has announced that it will pay a dividend of CN¥0.065 per share on the 12th of June. However, the dividend yield of 6.9% is still a decent boost to shareholder returns.

See our latest analysis for Dawnrays Pharmaceutical (Holdings)

Dawnrays Pharmaceutical (Holdings)'s Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Dawnrays Pharmaceutical (Holdings) was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

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's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was CN¥0.0351 in 2014, and the most recent fiscal year payment was CN¥0.0739. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 2.5% per year. While growth may be thin on the ground, Dawnrays Pharmaceutical (Holdings) could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Dawnrays Pharmaceutical (Holdings)'s Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Dawnrays Pharmaceutical (Holdings) is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Dawnrays Pharmaceutical (Holdings) that you should be aware of before investing. 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.