Lee's Pharmaceutical Holdings Limited (HKG:950) Is About To Go Ex-Dividend, And It Pays A 3.4% Yield

Lee's Pharmaceutical Holdings Limited (HKG:950) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Lee's Pharmaceutical Holdings' shares on or after the 28th of May will not receive the dividend, which will be paid on the 16th of June.

The company's next dividend payment will be HK$0.025 per share. Last year, in total, the company distributed HK$0.05 to shareholders. Looking at the last 12 months of distributions, Lee's Pharmaceutical Holdings has a trailing yield of approximately 3.4% on its current stock price of HK$1.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Lee's Pharmaceutical Holdings paid out a comfortable 28% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 31% 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.

Check out our latest analysis for Lee's Pharmaceutical Holdings

Click here to see how much of its profit Lee's Pharmaceutical Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Lee's Pharmaceutical Holdings's earnings per share have dropped 5.7% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Lee's Pharmaceutical Holdings has seen its dividend decline 6.0% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Lee's Pharmaceutical Holdings? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in Lee's Pharmaceutical Holdings for the dividends alone, you should always be mindful of the risks involved. Be aware that Lee's Pharmaceutical Holdings is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you're in the market for strong dividend payers, we recommend checking 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.