Haisco Pharmaceutical Group Co., Ltd. (SZSE:002653) stock is about to trade ex-dividend in 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Haisco Pharmaceutical Group's shares on or after the 18th of September will not receive the dividend, which will be paid on the 18th of September.

The company's next dividend payment will be CN¥0.145 per share, on the back of last year when the company paid a total of CN¥0.29 to shareholders. Calculating the last year's worth of payments shows that Haisco Pharmaceutical Group has a trailing yield of 0.9% on the current share price of CN¥32.92. If you buy this business for its dividend, you should have an idea of whether Haisco Pharmaceutical Group's dividend is reliable and sustainable. 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. Last year Haisco Pharmaceutical Group paid out 98% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Haisco Pharmaceutical Group generated enough free cash flow to afford its dividend. Over the past year it paid out 182% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Haisco Pharmaceutical Group's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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. This is why it's a relief to see Haisco Pharmaceutical Group earnings per share are up 2.4% per annum over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Haisco Pharmaceutical Group has lifted its dividend by approximately 1.5% a year on average.

Final Takeaway

Should investors buy Haisco Pharmaceutical Group for the upcoming dividend? Haisco Pharmaceutical Group is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not that we think Haisco Pharmaceutical Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Haisco Pharmaceutical Group as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 1 warning sign for Haisco Pharmaceutical Group you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.