It looks like The United Laboratories International Holdings Limited (HKG:3933) is about to go ex-dividend in the next four 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 United Laboratories International Holdings' shares before the 5th of July to receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is CN¥0.10 a share, following on from the last 12 months, when the company distributed a total of CN¥0.16 per share to shareholders. Based on the last year's worth of payments, United Laboratories International Holdings has a trailing yield of 4.0% on the current stock price of HK$4.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether United Laboratories International Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for United Laboratories International Holdings

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. United Laboratories International Holdings paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether United Laboratories International Holdings generated enough free cash flow to afford its dividend. Luckily it paid out just 21% of its free cash flow last year.

It's positive to see that United Laboratories International Holdings'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see United Laboratories International Holdings's earnings have been skyrocketing, up 45% per annum for the past five years. United Laboratories International Holdings earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. United Laboratories International Holdings's dividend payments per share have declined at 0.6% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Should investors buy United Laboratories International Holdings for the upcoming dividend? United Laboratories International Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about United Laboratories International Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in United Laboratories International Holdings for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for United Laboratories International Holdings you should know about.

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.