Here's What We Like About Essex Bio-Technology's (HKG:1061) Upcoming Dividend

Essex Bio-Technology Limited (HKG:1061) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Essex Bio-Technology's shares before the 30th of May in order to receive the dividend, which the company will pay on the 17th of June.

The company's next dividend payment will be HK$0.045 per share, on the back of last year when the company paid a total of HK$0.09 to shareholders. Based on the last year's worth of payments, Essex Bio-Technology has a trailing yield of 3.6% on the current stock price of HK$2.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Essex Bio-Technology can afford its dividend, and if the dividend could grow.

See our latest analysis for Essex Bio-Technology

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. Essex Bio-Technology is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Essex Bio-Technology generated enough free cash flow to afford its dividend. Luckily it paid out just 19% of its free cash flow last year.

It's positive to see that Essex Bio-Technology'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.

Click here to see how much of its profit Essex Bio-Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Essex Bio-Technology, with earnings per share up 3.7% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Essex Bio-Technology has lifted its dividend by approximately 17% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has Essex Bio-Technology got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Essex Bio-Technology 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 Essex Bio-Technology is being conservative with its dividend payouts and could still perform reasonably over the long run. Essex Bio-Technology looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Essex Bio-Technology for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Essex Bio-Technology that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.