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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hikma Pharmaceuticals PLC (LON:HIK) is about to go ex-dividend in just 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a 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. Meaning, you will need to purchase Hikma Pharmaceuticals' shares before the 20th of March to receive the dividend, which will be paid on the 1st of May.
The company's upcoming dividend is US$0.48 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Looking at the last 12 months of distributions, Hikma Pharmaceuticals has a trailing yield of approximately 3.1% on its current stock price of UK£20.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Hikma Pharmaceuticals can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Hikma Pharmaceuticals
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. Fortunately Hikma Pharmaceuticals's payout ratio is modest, at just 49% of profit. A useful secondary check can be to evaluate whether Hikma Pharmaceuticals generated enough free cash flow to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Hikma Pharmaceuticals's earnings are down 4.2% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hikma Pharmaceuticals has delivered 15% dividend growth per year on average over the past 10 years.