China Chemical & Pharmaceutical's (TWSE:1701) Dividend Will Be Reduced To NT$0.50

China Chemical & Pharmaceutical Co., Ltd. (TWSE:1701) has announced that on 20th of August, it will be paying a dividend ofNT$0.50, which a reduction from last year's comparable dividend. The yield is still above the industry average at 2.2%.

See our latest analysis for China Chemical & Pharmaceutical

China Chemical & Pharmaceutical's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, China Chemical & Pharmaceutical was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 0.9% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 48%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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. There hasn't been much of a change in the dividend over the last 10 years. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

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. China Chemical & Pharmaceutical hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On China Chemical & Pharmaceutical's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, China Chemical & Pharmaceutical has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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.

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