Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shanghai Allist Pharmaceuticals Co., Ltd. (SHSE:688578) is about to trade ex-dividend in the next two days. The ex-dividend date occurs one day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Shanghai Allist Pharmaceuticals' shares on or after the 5th of September, you won't be eligible to receive the dividend, when it is paid on the 5th of September.

The company's next dividend payment will be CN¥0.25 per share. If you buy this business for its dividend, you should have an idea of whether Shanghai Allist Pharmaceuticals's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's 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. Shanghai Allist Pharmaceuticals has a low and conservative payout ratio of just 16% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 15% of its free cash flow in the last year.

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?

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Shanghai Allist Pharmaceuticals's earnings have been skyrocketing, up 113% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Shanghai Allist Pharmaceuticals looks like a promising growth company.

This is Shanghai Allist Pharmaceuticals's first year of paying a regular dividend, so it doesn't have much of a history yet to compare to.

Final Takeaway

Should investors buy Shanghai Allist Pharmaceuticals for the upcoming dividend? Shanghai Allist Pharmaceuticals has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Shanghai Allist Pharmaceuticals, and we would prioritise taking a closer look at it.

In light of that, while Shanghai Allist Pharmaceuticals has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Shanghai Allist Pharmaceuticals that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.