It looks like ZhuZhou QianJin Pharmaceutical Co.,Ltd (SHSE:600479) is about to go ex-dividend in the next 2 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase ZhuZhou QianJin PharmaceuticalLtd's shares on or after the 27th of June, you won't be eligible to receive the dividend, when it is paid on the 27th of June.

The company's next dividend payment will be CN¥0.35 per share, on the back of last year when the company paid a total of CN¥0.35 to shareholders. Looking at the last 12 months of distributions, ZhuZhou QianJin PharmaceuticalLtd has a trailing yield of approximately 3.4% on its current stock price of CN¥10.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately ZhuZhou QianJin PharmaceuticalLtd's payout ratio is modest, at just 46% of profit. A useful secondary check can be to evaluate whether ZhuZhou QianJin PharmaceuticalLtd generated enough free cash flow to afford its dividend. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that ZhuZhou QianJin 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 ZhuZhou QianJin PharmaceuticalLtd paid out over the last 12 months.

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 ZhuZhou QianJin PharmaceuticalLtd, with earnings per share up 4.5% on average over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, ZhuZhou QianJin PharmaceuticalLtd has lifted its dividend by approximately 8.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid ZhuZhou QianJin PharmaceuticalLtd? Earnings per share growth has been growing somewhat, and ZhuZhou QianJin PharmaceuticalLtd 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 ZhuZhou QianJin PharmaceuticalLtd is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

So while ZhuZhou QianJin PharmaceuticalLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - ZhuZhou QianJin PharmaceuticalLtd has 1 warning sign we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com