Guangzhou Baiyunshan Pharmaceutical Holdings (HKG:874) Is Paying Out A Larger Dividend Than Last Year

Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (HKG:874) will increase its dividend on the 14th of July to HK$0.81. This will take the dividend yield from 3.8% to 3.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for Guangzhou Baiyunshan Pharmaceutical Holdings

Guangzhou Baiyunshan Pharmaceutical Holdings' Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Guangzhou Baiyunshan Pharmaceutical Holdings was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 0.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was CN¥0.049, compared to the most recent full-year payment of CN¥0.69. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Guangzhou Baiyunshan Pharmaceutical Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. It's encouraging to see Guangzhou Baiyunshan Pharmaceutical Holdings has been growing its earnings per share at 18% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Guangzhou Baiyunshan Pharmaceutical Holdings' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. 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. Taking the debate a bit further, we've identified 1 warning sign for Guangzhou Baiyunshan Pharmaceutical Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.