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 15th of June. This payment takes the dividend yield to 1.5%, which only provides a modest boost to overall returns.

See our latest analysis for Lee's Pharmaceutical Holdings

Lee's Pharmaceutical Holdings' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, Lee's Pharmaceutical Holdings' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 26.1% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 26%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was HK$0.058, compared to the most recent full-year payment of HK$0.02. This works out to a decline of approximately 66% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Lee's Pharmaceutical Holdings' EPS has fallen by approximately 26% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Lee's Pharmaceutical Holdings that investors should know about before committing capital to this 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.