Important news for shareholders and potential investors in Hikma Pharmaceuticals PLC (LON:HIK): The dividend payment of US$0.26 per share will be distributed to shareholders on 22 May 2019, and the stock will begin trading ex-dividend at an earlier date, 04 April 2019. Is this future income a persuasive enough catalyst for investors to think about Hikma Pharmaceuticals as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly 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 Hikma Pharmaceuticals fare?
The company currently pays out 32% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect HIK’s payout to fall to 26% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.8%. However, EPS should increase to $1.2, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. In the case of HIK it has increased its DPS from $0.075 to $0.38 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes HIK a true dividend rockstar.
Relative to peers, Hikma Pharmaceuticals produces a yield of 1.6%, which is on the low-side for Pharmaceuticals stocks.
With this in mind, I definitely rank Hikma Pharmaceuticals as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three relevant aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for HIK’s future growth? Take a look at our free research report of analyst consensus for HIK’s outlook.
- Valuation: What is HIK worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HIK is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.