Four Days Left Until Lee and Man Paper Manufacturing Limited (HKG:2314) Trades Ex-Dividend

By
Simply Wall St
Published
August 12, 2021
SEHK:2314
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Lee and Man Paper Manufacturing Limited (HKG:2314) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Lee and Man Paper Manufacturing's shares before the 17th of August in order to be eligible for the dividend, which will be paid on the 3rd of September.

The company's upcoming dividend is HK$0.15 a share, following on from the last 12 months, when the company distributed a total of HK$0.30 per share to shareholders. Based on the last year's worth of payments, Lee and Man Paper Manufacturing stock has a trailing yield of around 4.3% on the current share price of HK$6.91. If you buy this business for its dividend, you should have an idea of whether Lee and Man Paper Manufacturing's dividend is reliable and sustainable. So we need to investigate whether Lee and Man Paper Manufacturing can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Lee and Man Paper Manufacturing

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. Lee and Man Paper Manufacturing paid out a comfortable 35% of its profit last year. 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. Over the last year, it paid out dividends equivalent to 202% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Lee and Man Paper Manufacturing intends to continue funding this dividend, or if it could be forced to cut the payment.

Lee and Man Paper Manufacturing paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Lee and Man Paper Manufacturing's ability to maintain its dividend.

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

historic-dividend
SEHK:2314 Historic Dividend August 12th 2021

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Lee and Man Paper Manufacturing's earnings per share have been growing at 13% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Lee and Man Paper Manufacturing has lifted its dividend by approximately 7.9% 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.

Final Takeaway

Has Lee and Man Paper Manufacturing got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Lee and Man Paper Manufacturing has 2 warning signs we think you should be aware of.

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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