Hikma Pharmaceuticals PLC (LON:HIK) Looks Interesting, And It's About To Pay A Dividend

It looks like Hikma Pharmaceuticals PLC (LON:HIK) is about to go ex-dividend in the next three days. If you purchase the stock on or after the 18th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of April.

Hikma Pharmaceuticals's next dividend payment will be US$0.34 per share. Last year, in total, the company distributed US$0.50 to shareholders. Looking at the last 12 months of distributions, Hikma Pharmaceuticals has a trailing yield of approximately 1.6% on its current stock price of £21.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hikma Pharmaceuticals can afford its dividend, and if the dividend could grow.

View our latest analysis for Hikma Pharmaceuticals

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hikma Pharmaceuticals has a low and conservative payout ratio of just 17% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Hikma Pharmaceuticals earnings per share are up 7.6% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Hikma Pharmaceuticals has lifted its dividend by approximately 14% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Should investors buy Hikma Pharmaceuticals for the upcoming dividend? Earnings per share have been growing moderately, and Hikma Pharmaceuticals is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Hikma Pharmaceuticals is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Hikma Pharmaceuticals, and we would prioritise taking a closer look at it.

Curious what other investors think of Hikma Pharmaceuticals? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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