Lee & Man Chemical Company Limited (HKG:746) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 4th of May to receive the dividend, which will be paid on the 26th of May.
Lee & Man Chemical's upcoming dividend is HK$0.17 a share, following on from the last 12 months, when the company distributed a total of HK$0.24 per share to shareholders. Based on the last year's worth of payments, Lee & Man Chemical stock has a trailing yield of around 5.7% on the current share price of HK$4.18. 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 Lee & Man Chemical can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Lee & Man Chemical paid out a comfortable 39% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Lee & Man Chemical's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 & Man Chemical's earnings per share have been growing at 13% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Lee & Man Chemical has lifted its dividend by approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Lee & Man Chemical is keeping back more of its profits to grow the business.
Has Lee & Man Chemical got what it takes to maintain its dividend payments? Lee & Man Chemical has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Lee & Man Chemical, and we would prioritise taking a closer look at it.
While it's tempting to invest in Lee & Man Chemical for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Lee & Man Chemical that you should be aware of before investing in their shares.
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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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