Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that R&G PharmaStudies Co., Ltd. (SZSE:301333) is about to go ex-dividend in just 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase R&G PharmaStudies' shares before the 5th of July to receive the dividend, which will be paid on the 5th of July.

The company's next dividend payment will be CN¥0.20 per share, and in the last 12 months, the company paid a total of CN¥0.20 per share. Based on the last year's worth of payments, R&G PharmaStudies stock has a trailing yield of around 0.6% on the current share price of CN¥34.23. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether R&G PharmaStudies has been able to grow its dividends, or if the dividend might be cut.

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. R&G PharmaStudies paid out just 10.0% 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 R&G PharmaStudies generated enough free cash flow to afford its dividend. The good news is it paid out just 3.3% of its free cash flow in the 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see R&G PharmaStudies earnings per share are up 7.3% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Unfortunately R&G PharmaStudies has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

From a dividend perspective, should investors buy or avoid R&G PharmaStudies? Earnings per share have been growing moderately, and R&G PharmaStudies is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but R&G PharmaStudies is being conservative with its dividend payouts and could still perform reasonably over the long run. R&G PharmaStudies looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Wondering what the future holds for R&G PharmaStudies? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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