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 Anhui Hongyu Wuzhou Medical Manufacturer Co.,LTD. (SZSE:301234) is about to go ex-dividend in just 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Anhui Hongyu Wuzhou Medical ManufacturerLTD's shares before the 25th of June in order to be eligible for the dividend, which will be paid on the 25th of June.

The company's upcoming dividend is CN¥0.40 a share, following on from the last 12 months, when the company distributed a total of CN¥0.40 per share to shareholders. Looking at the last 12 months of distributions, Anhui Hongyu Wuzhou Medical ManufacturerLTD has a trailing yield of approximately 1.9% on its current stock price of CN¥21.54. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Anhui Hongyu Wuzhou Medical ManufacturerLTD has been able to grow its dividends, or if the dividend might be cut.

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. Anhui Hongyu Wuzhou Medical ManufacturerLTD paid out a comfortable 48% of its profit last year. 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. It paid out more than half (73%) of its free cash flow in the past year, which is within an average 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 how much of its profit Anhui Hongyu Wuzhou Medical ManufacturerLTD paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Anhui Hongyu Wuzhou Medical ManufacturerLTD earnings per share are up 5.0% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority 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.

Given that Anhui Hongyu Wuzhou Medical ManufacturerLTD has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Should investors buy Anhui Hongyu Wuzhou Medical ManufacturerLTD for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Anhui Hongyu Wuzhou Medical ManufacturerLTD 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 Anhui Hongyu Wuzhou Medical ManufacturerLTD looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Anhui Hongyu Wuzhou Medical ManufacturerLTD that we recommend you consider before investing in the business.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com