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 Anhui Coreach Technology Co.,Ltd (SZSE:002983) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Anhui Coreach TechnologyLtd investors that purchase the stock on or after the 18th of June will not receive the dividend, which will be paid on the 18th of June.
The company's upcoming dividend is CN¥0.349343 a share, following on from the last 12 months, when the company distributed a total of CN¥0.25 per share to shareholders. Last year's total dividend payments show that Anhui Coreach TechnologyLtd has a trailing yield of 1.2% on the current share price of CN¥21.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are 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. Fortunately Anhui Coreach TechnologyLtd's payout ratio is modest, at just 29% of profit. 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. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Anhui Coreach TechnologyLtd'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 Anhui Coreach TechnologyLtd 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. 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 Anhui Coreach TechnologyLtd's earnings per share have risen 15% 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. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Anhui Coreach TechnologyLtd has increased its dividend at approximately 2.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Anhui Coreach TechnologyLtd is keeping back more of its profits to grow the business.
To Sum It Up
Is Anhui Coreach TechnologyLtd an attractive dividend stock, or better left on the shelf? Anhui Coreach TechnologyLtd 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. Anhui Coreach TechnologyLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Anhui Coreach TechnologyLtd for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Anhui Coreach TechnologyLtd that you should be aware of before investing in their shares.
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.