Readers hoping to buy Leaguer (Shenzhen) Microelectronics Corp. (SHSE:688589) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Leaguer (Shenzhen) Microelectronics' shares on or after the 23rd of May, you won't be eligible to receive the dividend, when it is paid on the 23rd of May.
The company's next dividend payment will be CN¥0.35 per share, on the back of last year when the company paid a total of CN¥0.35 to shareholders. Calculating the last year's worth of payments shows that Leaguer (Shenzhen) Microelectronics has a trailing yield of 1.2% on the current share price of CN¥29.50. If you buy this business for its dividend, you should have an idea of whether Leaguer (Shenzhen) Microelectronics's dividend is reliable and sustainable. So we need to investigate whether Leaguer (Shenzhen) Microelectronics 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. Leaguer (Shenzhen) Microelectronics paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Leaguer (Shenzhen) Microelectronics generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.
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 Leaguer (Shenzhen) Microelectronics 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Leaguer (Shenzhen) Microelectronics's earnings have been skyrocketing, up 28% per annum for the past five years. Leaguer (Shenzhen) Microelectronics is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, three years ago, Leaguer (Shenzhen) Microelectronics has lifted its dividend by approximately 33% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Final Takeaway
Is Leaguer (Shenzhen) Microelectronics an attractive dividend stock, or better left on the shelf? Leaguer (Shenzhen) Microelectronics has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
So while Leaguer (Shenzhen) Microelectronics looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Leaguer (Shenzhen) Microelectronics that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.