China Resources Pharmaceutical Group's (HKG:3320) Upcoming Dividend Will Be Larger Than Last Year's

China Resources Pharmaceutical Group Limited (HKG:3320) has announced that it will be increasing its dividend on the 25th of July to HK$0.15. This takes the dividend yield from 3.7% to 3.7%, which shareholders will be pleased with.

View our latest analysis for China Resources Pharmaceutical Group

China Resources Pharmaceutical Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, China Resources Pharmaceutical Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 9.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

China Resources Pharmaceutical Group Doesn't Have A Long Payment History

China Resources Pharmaceutical Group's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from HK$0.09 in 2017 to the most recent annual payment of HK$0.15. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. China Resources Pharmaceutical Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

China Resources Pharmaceutical Group May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that China Resources Pharmaceutical Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, China Resources Pharmaceutical Group could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On China Resources Pharmaceutical Group's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. 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 1 warning sign for China Resources Pharmaceutical Group that investors should know about before committing capital to this stock. Is China Resources Pharmaceutical Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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