Shanghai Foreign Service Holding Group Co., Ltd. (SHSE:600662) stock is about to trade ex-dividend in two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Meaning, you will need to purchase Shanghai Foreign Service Holding Group's shares before the 17th of August to receive the dividend, which will be paid on the 17th of August.

The company's next dividend payment will be CN¥0.12 per share, and in the last 12 months, the company paid a total of CN¥0.12 per share. Last year's total dividend payments show that Shanghai Foreign Service Holding Group has a trailing yield of 2.0% on the current share price of CN¥6.01. If you buy this business for its dividend, you should have an idea of whether Shanghai Foreign Service Holding Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Shanghai Foreign Service Holding Group

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. Fortunately Shanghai Foreign Service Holding Group's payout ratio is modest, at just 49% 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. Fortunately, it paid out only 48% of its free cash flow in the past year.

It's positive to see that Shanghai Foreign Service Holding Group'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Shanghai Foreign Service Holding Group has grown its earnings rapidly, up 20% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shanghai Foreign Service Holding Group has delivered an average of 1.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Has Shanghai Foreign Service Holding Group got what it takes to maintain its dividend payments? It's great that Shanghai Foreign Service Holding Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Shanghai Foreign Service Holding Group, and we would prioritise taking a closer look at it.

In light of that, while Shanghai Foreign Service Holding Group has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Shanghai Foreign Service Holding Group and you should be aware of it before buying any shares.

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.