Stock Analysis

Is It Smart To Buy Jacobson Pharma Corporation Limited (HKG:2633) Before It Goes Ex-Dividend?

SEHK:2633
Source: Shutterstock

Jacobson Pharma Corporation Limited (HKG:2633) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 17th of December will not receive the dividend, which will be paid on the 6th of January.

Jacobson Pharma's upcoming dividend is HK$0.008 a share, following on from the last 12 months, when the company distributed a total of HK$0.045 per share to shareholders. Last year's total dividend payments show that Jacobson Pharma has a trailing yield of 3.8% on the current share price of HK$1.2. If you buy this business for its dividend, you should have an idea of whether Jacobson Pharma's dividend is reliable and sustainable. As a result, readers should always check whether Jacobson Pharma has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Jacobson Pharma

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Jacobson Pharma's payout ratio is modest, at just 33% of profit. 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. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

historic-dividend
SEHK:2633 Historic Dividend December 13th 2020

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. 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 Jacobson Pharma, with earnings per share up 4.9% on average over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Jacobson Pharma has delivered 30% dividend growth per year on average over the past four years. 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.

The Bottom Line

Should investors buy Jacobson Pharma for the upcoming dividend? Earnings per share have been growing moderately, and Jacobson Pharma 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 Jacobson Pharma is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Jacobson Pharma, and we would prioritise taking a closer look at it.

While it's tempting to invest in Jacobson Pharma for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Jacobson Pharma and understanding them should be part of your investment process.

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.

If you decide to trade Jacobson Pharma, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Jacobson Pharma is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.