Here's Why We're Wary Of Buying Panion & Bf Biotech's (TWSE:1760) For Its Upcoming Dividend

Panion & Bf Biotech Inc. (TWSE:1760) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Panion & Bf Biotech investors that purchase the stock on or after the 13th of June will not receive the dividend, which will be paid on the 10th of July.

The company's next dividend payment will be NT$1.50 per share. Last year, in total, the company distributed NT$1.50 to shareholders. Calculating the last year's worth of payments shows that Panion & Bf Biotech has a trailing yield of 1.5% on the current share price of NT$97.70. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Panion & Bf Biotech can afford its dividend, and if the dividend could grow.

See our latest analysis for Panion & Bf Biotech

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Panion & Bf Biotech distributed an unsustainably high 131% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Panion & Bf Biotech generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 231% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Panion & Bf Biotech is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Cash is slightly more important than profit from a dividend perspective, but given Panion & Bf Biotech's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Panion & Bf Biotech paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Panion & Bf Biotech's earnings per share have fallen at approximately 11% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Panion & Bf Biotech has delivered 34% dividend growth per year on average over the past nine years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Panion & Bf Biotech is already paying out 131% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Has Panion & Bf Biotech got what it takes to maintain its dividend payments? Not only are earnings per share declining, but Panion & Bf Biotech is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Panion & Bf Biotech.

With that being said, if you're still considering Panion & Bf Biotech as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 1 warning sign for Panion & Bf Biotech you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.