It looks like Zhejiang Xianju Pharmaceutical Co.,Ltd. (SZSE:002332) is about to go ex-dividend in the next two 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 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. Thus, you can purchase Zhejiang Xianju PharmaceuticalLtd's shares before the 5th of June in order to receive the dividend, which the company will pay on the 5th of June.
The company's next dividend payment will be CN¥0.30 per share. Last year, in total, the company distributed CN¥0.30 to shareholders. Calculating the last year's worth of payments shows that Zhejiang Xianju PharmaceuticalLtd has a trailing yield of 2.5% on the current share price of CN¥12.16. If you buy this business for its dividend, you should have an idea of whether Zhejiang Xianju PharmaceuticalLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Zhejiang Xianju PharmaceuticalLtd paid out 51% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 78% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that Zhejiang Xianju 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 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. 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 Zhejiang Xianju PharmaceuticalLtd's earnings per share have risen 12% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Zhejiang Xianju PharmaceuticalLtd has delivered 18% dividend growth per year on average over the past nine years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Is Zhejiang Xianju PharmaceuticalLtd worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Zhejiang Xianju PharmaceuticalLtd's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 51% and 78% respectively. Overall, it's hard to get excited about Zhejiang Xianju PharmaceuticalLtd from a dividend perspective.
While it's tempting to invest in Zhejiang Xianju PharmaceuticalLtd for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Zhejiang Xianju PharmaceuticalLtd you should know about.
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.