Zhongzhi Pharmaceutical Holdings (HKG:3737) Is Reducing Its Dividend To CN¥0.03

Zhongzhi Pharmaceutical Holdings Limited's (HKG:3737) dividend is being reduced from last year's payment covering the same period to CN¥0.03 on the 13th of June. The dividend yield of 5.0% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Zhongzhi Pharmaceutical Holdings

Zhongzhi Pharmaceutical Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Zhongzhi Pharmaceutical Holdings' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

If the trend of the last few years continues, EPS will grow by 13.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

Zhongzhi Pharmaceutical Holdings' Dividend Has Lacked Consistency

Looking back, Zhongzhi Pharmaceutical Holdings' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2016, the annual payment back then was CN¥0.0294, compared to the most recent full-year payment of CN¥0.0553. This works out to be a compound annual growth rate (CAGR) of approximately 8.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Zhongzhi Pharmaceutical Holdings has impressed us by growing EPS at 13% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We Really Like Zhongzhi Pharmaceutical Holdings' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Zhongzhi Pharmaceutical Holdings does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Zhongzhi Pharmaceutical Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.