Essex Bio-Technology's (HKG:1061) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Essex Bio-Technology Limited (HKG:1061) has announced that it will be paying its dividend of HK$0.07 on the 23rd of September, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.7%.

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Essex Bio-Technology's Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Essex Bio-Technology's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 13.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.

View our latest analysis for Essex Bio-Technology

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from HK$0.022 total annually to HK$0.14. This means that it has been growing its distributions at 20% per annum over that time. Essex Bio-Technology has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Essex Bio-Technology's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Essex Bio-Technology has impressed us by growing EPS at 7.5% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Essex Bio-Technology's prospects of growing its dividend payments in the future.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Essex Bio-Technology that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.