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 Tianjin Chase Sun Pharmaceutical Co.,Ltd (SZSE:300026) is about to go ex-dividend in just day or two. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Tianjin Chase Sun PharmaceuticalLtd investors that purchase the stock on or after the 23rd of May will not receive the dividend, which will be paid on the 23rd of May.
The company's next dividend payment will be CN¥0.03 per share. Last year, in total, the company distributed CN¥0.03 to shareholders. Calculating the last year's worth of payments shows that Tianjin Chase Sun PharmaceuticalLtd has a trailing yield of 0.8% on the current share price of CN¥3.76. If you buy this business for its dividend, you should have an idea of whether Tianjin Chase Sun PharmaceuticalLtd's dividend is reliable and sustainable. So we need to investigate whether Tianjin Chase Sun PharmaceuticalLtd can afford its dividend, and if the dividend could grow.
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. Tianjin Chase Sun PharmaceuticalLtd paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 15% of its free cash flow in the last year.
It's positive to see that Tianjin Chase Sun PharmaceuticalLtd'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 Tianjin Chase Sun PharmaceuticalLtd 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Tianjin Chase Sun PharmaceuticalLtd's earnings per share have risen 13% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tianjin Chase Sun PharmaceuticalLtd has delivered 7.3% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Tianjin Chase Sun PharmaceuticalLtd an attractive dividend stock, or better left on the shelf? Tianjin Chase Sun PharmaceuticalLtd has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Tianjin Chase Sun PharmaceuticalLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Tianjin Chase Sun PharmaceuticalLtd for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Tianjin Chase Sun PharmaceuticalLtd you should know about.
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.