It looks like Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co.,Ltd. (HKG:1349) is about to go ex-dividend in the next 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. 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. Meaning, you will need to purchase Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's shares before the 5th of July to receive the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be CN¥0.07 per share, on the back of last year when the company paid a total of CN¥0.07 to shareholders. Last year's total dividend payments show that Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd has a trailing yield of 2.4% on the current share price of HK$3.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd generated enough free cash flow to afford its dividend. Fortunately, it paid out only 41% of its free cash flow in the past year.

It's positive to see that Shanghai Fudan-Zhangjiang Bio-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 Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd earnings per share are up 6.6% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd has delivered 4.9% dividend growth per year on average over the past seven years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd worth buying for its dividend? Earnings per share growth has been growing somewhat, and Shanghai Fudan-Zhangjiang Bio-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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Keen to explore more data on Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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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.