Essex Bio-Technology Limited (HKG:1061) Looks Interesting, And It's About To Pay A Dividend
Essex Bio-Technology Limited (HKG:1061) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days 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. 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. Thus, you can purchase Essex Bio-Technology's shares before the 28th of May in order to receive the dividend, which the company will pay on the 12th of June.
The company's next dividend payment will be HK$0.07 per share. Last year, in total, the company distributed HK$0.14 to shareholders. Calculating the last year's worth of payments shows that Essex Bio-Technology has a trailing yield of 4.7% on the current share price of HK$2.99. If you buy this business for its dividend, you should have an idea of whether Essex Bio-Technology's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Essex Bio-Technology is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Essex Bio-Technology generated enough free cash flow to afford its dividend. It paid out more than half (56%) 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.
View our latest analysis for Essex Bio-Technology
Click here to see how much of its profit Essex Bio-Technology paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Essex Bio-Technology, with earnings per share up 8.2% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Essex Bio-Technology has increased its dividend at approximately 19% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Essex Bio-Technology got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that Essex Bio-Technology is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 1 warning sign for Essex Bio-Technology that you should be aware of before investing in their 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.