Stock Analysis

Jacobson Pharma (HKG:2633) Is Reducing Its Dividend To HK$0.015

SEHK:2633
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Jacobson Pharma Corporation Limited (HKG:2633) has announced it will be reducing its dividend payable on the 19th of October to HK$0.015. This means the annual payment is 32% of the current stock price, which is above the average for the industry.

See our latest analysis for Jacobson Pharma

Jacobson Pharma Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Jacobson Pharma's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the company can't turn things around, EPS could fall by 4.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 279%, which could put the dividend in jeopardy if the company's earnings don't improve.

historic-dividend
SEHK:2633 Historic Dividend September 24th 2021

Jacobson Pharma's Dividend Has Lacked Consistency

It's comforting to see that Jacobson Pharma has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 5 years was HK$0.016 in 2016, and the most recent fiscal year payment was HK$0.023. This works out to be a compound annual growth rate (CAGR) of approximately 7.5% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Jacobson Pharma May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Jacobson Pharma's EPS has declined at around 4.0% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Jacobson Pharma is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Jacobson Pharma that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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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.
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