It looks like Shenzhen SDG Service Co.,Ltd. (SZSE:300917) is about to go ex-dividend in the next 3 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Shenzhen SDG ServiceLtd's shares before the 24th of May to receive the dividend, which will be paid on the 24th of May.
The company's upcoming dividend is CN¥0.22 a share, following on from the last 12 months, when the company distributed a total of CN¥0.22 per share to shareholders. Based on the last year's worth of payments, Shenzhen SDG ServiceLtd stock has a trailing yield of around 0.5% on the current share price of CN¥40.90. 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 Shenzhen SDG ServiceLtd can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Shenzhen SDG ServiceLtd paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Shenzhen SDG ServiceLtd generated enough free cash flow to afford its dividend. The good news is it paid out just 25% of its free cash flow in the last year.
It's positive to see that Shenzhen SDG ServiceLtd'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 Shenzhen SDG ServiceLtd 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Shenzhen SDG ServiceLtd's earnings per share have risen 12% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Shenzhen SDG ServiceLtd has increased its dividend at approximately 2.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Shenzhen SDG ServiceLtd is keeping back more of its profits to grow the business.
To Sum It Up
Is Shenzhen SDG ServiceLtd worth buying for its dividend? We love that Shenzhen SDG ServiceLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
In light of that, while Shenzhen SDG ServiceLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Shenzhen SDG ServiceLtd 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.