There's A Lot To Like About Lincoln Pharmaceuticals' (NSE:LINCOLN) Upcoming ₹1.80 Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lincoln Pharmaceuticals Limited (NSE:LINCOLN) 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Lincoln Pharmaceuticals' shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 30th of October.
The company's next dividend payment will be ₹1.80 per share, and in the last 12 months, the company paid a total of ₹1.80 per share. Last year's total dividend payments show that Lincoln Pharmaceuticals has a trailing yield of 0.3% on the current share price of ₹620.80. 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 check whether the dividend payments are covered, and if earnings are growing.
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. Lincoln Pharmaceuticals is paying out just 4.1% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 4.5% of its free cash flow in the last year.
It's positive to see that Lincoln Pharmaceuticals's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for Lincoln Pharmaceuticals
Click here to see how much of its profit Lincoln Pharmaceuticals paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Lincoln Pharmaceuticals, with earnings per share up 9.2% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
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, Lincoln Pharmaceuticals has increased its dividend at approximately 6.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
From a dividend perspective, should investors buy or avoid Lincoln Pharmaceuticals? Earnings per share growth has been growing somewhat, and Lincoln Pharmaceuticals is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Lincoln Pharmaceuticals is halfway there. Lincoln Pharmaceuticals looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious about whether Lincoln Pharmaceuticals has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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.