Read This Before Considering LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) For Its Upcoming CN¥0.50 Dividend
LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is two business days 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 as the process of settlement involves at least 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, LEPU ScienTech Medical Technology (Shanghai) investors that purchase the stock on or after the 27th of May will not receive the dividend, which will be paid on the 31st of July.
The company's next dividend payment will be CN¥0.50 per share, on the back of last year when the company paid a total of CN¥0.50 to shareholders. Last year's total dividend payments show that LEPU ScienTech Medical Technology (Shanghai) has a trailing yield of 4.8% on the current share price of HK$12.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether LEPU ScienTech Medical Technology (Shanghai) has been able to grow its dividends, or if the dividend might be cut.
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. LEPU ScienTech Medical Technology (Shanghai) paid out 72% of its earnings to investors last year, a normal payout level for most businesses. 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. LEPU ScienTech Medical Technology (Shanghai) paid out more free cash flow than it generated - 149%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
LEPU ScienTech Medical Technology (Shanghai) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While LEPU ScienTech Medical Technology (Shanghai)'s dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were LEPU ScienTech Medical Technology (Shanghai) to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for LEPU ScienTech Medical Technology (Shanghai)
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see LEPU ScienTech Medical Technology (Shanghai)'s earnings have been skyrocketing, up 23% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. LEPU ScienTech Medical Technology (Shanghai) has seen its dividend decline 6.3% per annum on average over the past two years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
To Sum It Up
From a dividend perspective, should investors buy or avoid LEPU ScienTech Medical Technology (Shanghai)? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note LEPU ScienTech Medical Technology (Shanghai) paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about LEPU ScienTech Medical Technology (Shanghai) from a dividend perspective.
So if you want to do more digging on LEPU ScienTech Medical Technology (Shanghai), you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for LEPU ScienTech Medical Technology (Shanghai) you should be aware of.
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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.