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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the last few years Jacobson Pharma Corporation Limited (HKG:2633) has paid a dividend to shareholders. Today it yields 2.1%. Does Jacobson Pharma tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Jacobson Pharma

Here’s how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share risen in the past couple of years?

• Is its earnings sufficient to payout dividend at the current rate?

• Will it have the ability to keep paying its dividends going forward?

How does Jacobson Pharma fare?

The company currently pays out 34.1% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 29.7%, leading to a dividend yield of around 2.5%. However, EPS should increase to HK$0.13, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Jacobson Pharma as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Jacobson Pharma has a yield of 2.1%, which is high for Pharmaceuticals stocks but still below the market’s top dividend payers.

Next Steps:

If you are building an income portfolio, then Jacobson Pharma is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three pertinent factors you should further examine: