Readers hoping to buy Dencare (Chongqing) Oral Care Co., Ltd. (SZSE:001328) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Dencare (Chongqing) Oral Care's shares before the 2nd of July in order to receive the dividend, which the company will pay on the 2nd of July.

The company's next dividend payment will be CN¥0.65 per share, and in the last 12 months, the company paid a total of CN¥0.65 per share. Looking at the last 12 months of distributions, Dencare (Chongqing) Oral Care has a trailing yield of approximately 2.6% on its current stock price of CN¥25.05. If you buy this business for its dividend, you should have an idea of whether Dencare (Chongqing) Oral Care'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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Dividends consumed 72% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Dencare (Chongqing) Oral Care, with earnings per share up 7.2% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Unfortunately Dencare (Chongqing) Oral Care has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

From a dividend perspective, should investors buy or avoid Dencare (Chongqing) Oral Care? Earnings per share have been growing modestly and Dencare (Chongqing) Oral Care paid out a bit over half of its earnings and free cash flow last year. Overall, it's hard to get excited about Dencare (Chongqing) Oral Care from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Dencare (Chongqing) Oral Care, you should know about the other risks facing this business. To help with this, we've discovered 2 warning signs for Dencare (Chongqing) Oral Care that you should be aware of before investing in their shares.

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