Hubei Jumpcan Pharmaceutical Co., Ltd. (SHSE:600566) is about to trade ex-dividend in the next 3 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 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 Hubei Jumpcan Pharmaceutical's shares before the 17th of June in order to receive the dividend, which the company will pay on the 17th of June.

The company's upcoming dividend is CN¥1.30 a share, following on from the last 12 months, when the company distributed a total of CN¥1.30 per share to shareholders. Looking at the last 12 months of distributions, Hubei Jumpcan Pharmaceutical has a trailing yield of approximately 3.6% on its current stock price of CN¥36.54. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Hubei Jumpcan Pharmaceutical has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hubei Jumpcan Pharmaceutical paid out a comfortable 40% of its profit last year. A useful secondary check can be to evaluate whether Hubei Jumpcan Pharmaceutical generated enough free cash flow to afford its dividend. Fortunately, it paid out only 26% of its free cash flow in the past year.

It's positive to see that Hubei Jumpcan Pharmaceutical'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Hubei Jumpcan Pharmaceutical, with earnings per share up 9.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hubei Jumpcan Pharmaceutical has delivered an average of 14% per year annual increase in its dividend, based on the past nine years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Hubei Jumpcan Pharmaceutical an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Hubei Jumpcan Pharmaceutical is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Hubei Jumpcan Pharmaceutical is being conservative with its dividend payouts and could still perform reasonably over the long run. Hubei Jumpcan Pharmaceutical looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Hubei Jumpcan Pharmaceutical for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Hubei Jumpcan Pharmaceutical 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.