HPGC Renmintongtai Pharmaceutical Corporation (SHSE:600829) stock is about to trade ex-dividend in two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 HPGC Renmintongtai Pharmaceutical's shares on or after the 25th of July, you won't be eligible to receive the dividend, when it is paid on the 25th of July.

The company's next dividend payment will be CN¥0.144 per share. Last year, in total, the company distributed CN¥0.14 to shareholders. Calculating the last year's worth of payments shows that HPGC Renmintongtai Pharmaceutical has a trailing yield of 2.5% on the current share price of CN¥5.68. If you buy this business for its dividend, you should have an idea of whether HPGC Renmintongtai Pharmaceutical's dividend is reliable and sustainable. 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. That's why it's good to see HPGC Renmintongtai Pharmaceutical paying out a modest 28% of its earnings. 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. Over the past year it paid out 177% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

HPGC Renmintongtai Pharmaceutical paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were HPGC Renmintongtai Pharmaceutical to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit HPGC Renmintongtai Pharmaceutical 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. With that in mind, we're encouraged by the steady growth at HPGC Renmintongtai Pharmaceutical, with earnings per share up 3.2% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. HPGC Renmintongtai Pharmaceutical has delivered 0.8% dividend growth per year on average over the past 10 years.

The Bottom Line

Has HPGC Renmintongtai Pharmaceutical got what it takes to maintain its dividend payments? HPGC Renmintongtai Pharmaceutical has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into HPGC Renmintongtai Pharmaceutical, it's worth knowing the risks this business faces. For example - HPGC Renmintongtai Pharmaceutical has 1 warning sign we think you should be aware of.

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.

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