Stock Analysis

Jacobson Pharma (HKG:2633) Is Increasing Its Dividend To HK$0.0268

SEHK:2633
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Jacobson Pharma Corporation Limited (HKG:2633) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of October to HK$0.0268. This makes the dividend yield 4.4%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Jacobson Pharma's stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Jacobson Pharma

Jacobson Pharma's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Jacobson Pharma was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Unless the company can turn things around, EPS could fall by 4.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 48%, which is definitely feasible to continue.

historic-dividend
SEHK:2633 Historic Dividend September 25th 2022

Jacobson Pharma's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of HK$0.016 in 2016 to the most recent total annual payment of HK$0.0388. This means that it has been growing its distributions at 16% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Jacobson Pharma's EPS has declined at around 4.0% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Jacobson Pharma's Dividend

Overall, we always like to see the dividend being raised, but we don't think Jacobson Pharma will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Jacobson Pharma (1 is a bit concerning!) that you should be aware of before investing. 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.