It looks like Zhongzhi Pharmaceutical Holdings Limited (HKG:3737) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 15th of October in order to be eligible for this dividend, which will be paid on the 1st of November.
Zhongzhi Pharmaceutical Holdings's next dividend payment will be HK$0.05 per share, and in the last 12 months, the company paid a total of HK$0.07 per share. Last year's total dividend payments show that Zhongzhi Pharmaceutical Holdings has a trailing yield of 5.6% on the current share price of HK$1.45. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Zhongzhi Pharmaceutical Holdings paying out a modest 40% of its earnings. A useful secondary check can be to evaluate whether Zhongzhi Pharmaceutical Holdings generated enough free cash flow to afford its dividend. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Zhongzhi Pharmaceutical Holdings's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Zhongzhi Pharmaceutical Holdings has delivered an average of 36% per year annual increase in its dividend, based on the past three years of dividend payments.
To Sum It Up
Is Zhongzhi Pharmaceutical Holdings worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that Zhongzhi Pharmaceutical Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Zhongzhi Pharmaceutical Holdings is halfway there. There's a lot to like about Zhongzhi Pharmaceutical Holdings, and we would prioritise taking a closer look at it.
Want to learn more about Zhongzhi Pharmaceutical Holdings's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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