Is It Worth Considering Concord Biotech Limited (NSE:CONCORDBIO) For Its Upcoming Dividend?

Concord Biotech Limited (NSE:CONCORDBIO) is about to trade ex-dividend in the next 3 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. Therefore, if you purchase Concord Biotech’s shares on or after the 24th of July, you won’t be eligible to receive the dividend, when it is paid on the 30th of August.

The company’s next dividend payment will be ₹7.55 per share, and in the last 12 months, the company paid a total of ₹7.55 per share. Looking at the last 12 months of distributions, Concord Biotech has a trailing yield of approximately 0.6% on its current stock price of ₹1342.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Concord Biotech can afford its dividend, and if the dividend could grow.

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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 Concord Biotech’s payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Concord Biotech generated enough free cash flow to afford its dividend. Dividends consumed 65% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

See our latest analysis for Concord Biotech

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re encouraged by the steady growth at Concord Biotech, with earnings per share up 2.1% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Concord Biotech has seen its dividend decline 7.1% 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.

Final Takeaway

Is Concord Biotech worth buying for its dividend? Earnings per share growth has been modest, and it’s interesting that Concord Biotech is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So while Concord Biotech looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Concord Biotech and you should be aware of it before buying any shares.

If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.