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Shares of Zhongzhi Pharmaceutical Holdings Limited (HKG:3737) will begin trading ex-dividend in 4 days. To qualify for the dividend check of CN¥0.043 per share, investors must have owned the shares prior to 16 October 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. What does this mean for current shareholders and potential investors? Below, I will explain how holding Zhongzhi Pharmaceutical Holdings can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.

View our latest analysis for Zhongzhi Pharmaceutical Holdings

How I analyze a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is it paying an annual yield above 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

How does Zhongzhi Pharmaceutical Holdings fare?

The company currently pays out 42% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Zhongzhi Pharmaceutical Holdings as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Zhongzhi Pharmaceutical Holdings has a yield of 4.5%, which is high for Personal Products stocks but still below the market’s top dividend payers.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Zhongzhi Pharmaceutical Holdings for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent aspects you should further research: