Standard Chemical & Pharmaceutical Co. Ltd. (TWSE:1720) Goes Ex-Dividend Soon

It looks like Standard Chemical & Pharmaceutical Co. Ltd. (TWSE:1720) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Standard Chemical & Pharmaceutical investors that purchase the stock on or after the 1st of August will not receive the dividend, which will be paid on the 30th of August.

The company's next dividend payment will be NT$2.70 per share, on the back of last year when the company paid a total of NT$2.70 to shareholders. Looking at the last 12 months of distributions, Standard Chemical & Pharmaceutical has a trailing yield of approximately 3.4% on its current stock price of NT$78.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Standard Chemical & Pharmaceutical

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Standard Chemical & Pharmaceutical paid out 55% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 62% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Standard Chemical & Pharmaceutical's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Standard Chemical & Pharmaceutical paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Standard Chemical & Pharmaceutical's earnings per share have been growing at 19% a year for the past five years. Standard Chemical & Pharmaceutical has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Standard Chemical & Pharmaceutical has lifted its dividend by approximately 0.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Standard Chemical & Pharmaceutical is keeping back more of its profits to grow the business.

Final Takeaway

Is Standard Chemical & Pharmaceutical an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Standard Chemical & Pharmaceutical's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 55% and 62% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Standard Chemical & Pharmaceutical today.

In light of that, while Standard Chemical & Pharmaceutical has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Standard Chemical & Pharmaceutical and understanding them should be part of your investment process.

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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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