Shanghai International Port (Group) Co., Ltd. (SHSE:600018) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Shanghai International Port (Group)'s shares on or after the 11th of August will not receive the dividend, which will be paid on the 11th of August.

The company's upcoming dividend is CN¥0.14 a share, following on from the last 12 months, when the company distributed a total of CN¥0.14 per share to shareholders. Based on the last year's worth of payments, Shanghai International Port (Group) has a trailing yield of 2.6% on the current stock price of CN¥5.42. 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 Shanghai International Port (Group) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shanghai International Port (Group)

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 International Port (Group) paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Shanghai International Port (Group) generated enough free cash flow to afford its dividend. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Shanghai International Port (Group)'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 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. This is why it's a relief to see Shanghai International Port (Group) earnings per share are up 6.6% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shanghai International Port (Group)'s dividend payments are effectively flat on where they were 10 years ago.

Final Takeaway

Should investors buy Shanghai International Port (Group) for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Shanghai International Port (Group) 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.

On that note, you'll want to research what risks Shanghai International Port (Group) is facing. Our analysis shows 2 warning signs for Shanghai International Port (Group) that we strongly recommend you have a look at before investing in the company.

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.