Readers hoping to buy Wenzhou Kangning Hospital Co., Ltd. (HKG:2120) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Thus, you can purchase Wenzhou Kangning Hospital's shares before the 16th of October in order to receive the dividend, which the company will pay on the 18th of November.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.59 to shareholders. Based on the last year's worth of payments, Wenzhou Kangning Hospital has a trailing yield of 4.8% on the current stock price of HK$13.70. 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 investigate whether Wenzhou Kangning Hospital can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Wenzhou Kangning Hospital paying out a modest 36% 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 last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Wenzhou Kangning Hospital'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.

Click here to see how much of its profit Wenzhou Kangning Hospital paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Wenzhou Kangning Hospital, with earnings per share up 3.3% 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Wenzhou Kangning Hospital has delivered 11% dividend growth per year on average over the past eight years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Wenzhou Kangning Hospital an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest, and it's interesting that Wenzhou Kangning Hospital is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it's hard to get excited about Wenzhou Kangning Hospital from a dividend perspective.

On that note, you'll want to research what risks Wenzhou Kangning Hospital is facing. We've identified 2 warning signs with Wenzhou Kangning Hospital (at least 1 which is concerning), and understanding them should be part of your investment process.

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.