Read This Before Considering Lee's Pharmaceutical Holdings Limited (HKG:950) For Its Upcoming HK$0.023 Dividend

Lee's Pharmaceutical Holdings Limited (HKG:950) stock is about to trade ex-dividend in 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. 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. Thus, you can purchase Lee's Pharmaceutical Holdings' shares before the 27th of May in order to receive the dividend, which the company will pay on the 15th of June.

The company's next dividend payment will be HK$0.023 per share. Last year, in total, the company distributed HK$0.045 to shareholders. Looking at the last 12 months of distributions, Lee's Pharmaceutical Holdings has a trailing yield of approximately 4.1% on its current stock price of HK$1.09. 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. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Lee's Pharmaceutical Holdings paid out a comfortable 29% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 27% 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.

See 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. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Lee's Pharmaceutical Holdings's earnings per share have dropped 6.6% 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's dividend payments per share have declined at 8.0% per year on average over the past 10 years, which is uninspiring. 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.

Final Takeaway

Has Lee's Pharmaceutical Holdings got what it takes to maintain its dividend payments? Lee's Pharmaceutical Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Lee's Pharmaceutical Holdings is facing. To help with this, we've discovered 3 warning signs for Lee's Pharmaceutical Holdings (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.

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.

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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.