Lee's Pharmaceutical Holdings Limited (HKG:950) Pays A HK$0.02 Dividend In Just Three Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Lee's Pharmaceutical Holdings Limited (HKG:950) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Lee's Pharmaceutical Holdings' shares on or after the 12th of September will not receive the dividend, which will be paid on the 3rd of October.

The company's upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.03 per share to shareholders. Based on the last year's worth of payments, Lee's Pharmaceutical Holdings stock has a trailing yield of around 2.5% on the current share price of HK$1.21. If you buy this business for its dividend, you should have an idea of whether Lee's Pharmaceutical Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Lee's Pharmaceutical Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Lee's Pharmaceutical Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Lee's Pharmaceutical Holdings's payout ratio is modest, at just 28% of profit. A useful secondary check can be to evaluate whether Lee's Pharmaceutical Holdings generated enough free cash flow to afford its dividend. It paid out more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.

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.

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. If earnings fall far enough, the company could be forced to cut its dividend. Lee's Pharmaceutical Holdings's earnings per share have plummeted approximately 31% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lee's Pharmaceutical Holdings has seen its dividend decline 8.8% 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Lee's Pharmaceutical Holdings? Earnings per share have fallen significantly, although at least Lee's Pharmaceutical Holdings paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Lee's Pharmaceutical Holdings's dividend merits.

So if you want to do more digging on Lee's Pharmaceutical Holdings, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 2 warning signs for Lee's Pharmaceutical Holdings that we strongly recommend you have a look at before investing in the company.

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.