Lee's Pharmaceutical Holdings' (HKG:950) Dividend Is Being Reduced To HK$0.01

Lee's Pharmaceutical Holdings Limited's (HKG:950) dividend is being reduced from last year's payment covering the same period to HK$0.01 on the 27th of September. Despite the cut, the dividend yield of 2.2% will still be comparable to other companies in the industry.

View our latest analysis for Lee's Pharmaceutical Holdings

Lee's Pharmaceutical Holdings' Distributions May Be Difficult To Sustain

We aren't too impressed by dividend yields unless they can be sustained over time. Even though Lee's Pharmaceutical Holdings isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Assuming the trend of the last few years continues, EPS will grow by 42.8% over the next 12 months. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from HK$0.042 total annually to HK$0.041. Payments have been decreasing at a very slow pace in this time period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Company Could Face Some Challenges Growing 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. Lee's Pharmaceutical Holdings has impressed us by growing EPS at 43% per year over the past five years. While the company hasn't yet recorded a profit, the growth rates are healthy. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.

Our Thoughts On Lee's Pharmaceutical Holdings' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Lee's Pharmaceutical Holdings 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Lee's Pharmaceutical Holdings stock. Is Lee's Pharmaceutical Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.