Changmao Biochemical Engineering dividend (HKG: 954) will be reduced to HK $ 0.024
Changmao Biochemical Engineering Company Limited (HKG: 954) announced that it will reduce its dividend payable on July 30 to HK $ 0.024. Despite the reduction, the dividend yield of 3.1% will still be comparable to that of other companies in the sector.
Check out our latest review for Changmao’s Biochemical Engineering
Changmao’s biochemical engineering pays more than it earns
Unless the payments are sustainable, the dividend yield doesn’t mean too much. Prior to this announcement, Changmao Biochemical Engineering’s earnings easily covered the dividend, but free cash flow was negative. No cash flow could certainly make it difficult to return cash to shareholders, or at least mean that the balance sheet would be under pressure.
EPS is expected to decline 18.0% over the next 12 months if recent trends continue. Assuming the dividend continues on recent trends, we think the payout ratio could reach 104%, which could put the dividend under pressure if earnings don’t start improving.
The company has a long dividend track record, but it doesn’t look great with cuts in the past. The first annual payment in the past 10 years was CNY 0.043 in 2011, and the most recent payment for the financial year was CNY 0.02. The dividend has decreased by approximately 7.4% per annum during this period. A business that decreases its dividend over time is usually not what we are looking for.
The dividend has limited growth potential
Since dividend payments have shrunk like a glacier in a warming world, we need to check if there are any bright spots on the horizon. Changmao Biochemical Engineering’s earnings per share have declined 18% per year over the past five years. These rapid declines certainly have the potential to limit dividend payments if the trend continues into the future.
The dividend could prove to be unreliable
Overall, it’s not great to see that the dividend has been reduced, but that could be because the payouts were a bit high before. With no cash flow, it’s hard to see how the business can support the payment of a dividend. This company is not part of the first income level providing shares.
Market movements attest to the high value of a coherent dividend policy compared to a more unpredictable policy. Still, there are a host of other factors that investors should consider, aside from dividend payments, when analyzing a business. For example, we have chosen 3 warning signs for Changmao’s biochemical engineering that investors should know before committing any capital to this stock. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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