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We Wouldn't Be Too Quick To Buy Shanghai Dazhong Public Utilities(Group) Co.,Ltd. (SHSE:600635) Before It Goes Ex-Dividend

Simply Wall St ·  {{timeTz}}

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Shanghai Dazhong Public Utilities(Group) Co.,Ltd. (SHSE:600635) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Shanghai Dazhong Public Utilities(Group)Ltd's shares on or after the 20th of July, you won't be eligible to receive the dividend, when it is paid on the 20th of July.

The company's next dividend payment will be CN¥0.05 per share. Last year, in total, the company distributed CN¥0.05 to shareholders. Based on the last year's worth of payments, Shanghai Dazhong Public Utilities(Group)Ltd has a trailing yield of 1.6% on the current stock price of CN¥3.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Shanghai Dazhong Public Utilities(Group)Ltd has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Shanghai Dazhong Public Utilities(Group)Ltd

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. Shanghai Dazhong Public Utilities(Group)Ltd reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Click here to see how much of its profit Shanghai Dazhong Public Utilities(Group)Ltd paid out over the last 12 months.

historic-dividendSHSE:600635 Historic Dividend July 15th 2022

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Shanghai Dazhong Public Utilities(Group)Ltd was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shanghai Dazhong Public Utilities(Group)Ltd has delivered 0.7% dividend growth per year on average over the past 10 years.

Remember, you can always get a snapshot of Shanghai Dazhong Public Utilities(Group)Ltd's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Shanghai Dazhong Public Utilities(Group)Ltd worth buying for its dividend? It's hard to get used to Shanghai Dazhong Public Utilities(Group)Ltd paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Shanghai Dazhong Public Utilities(Group)Ltd and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 3 warning signs we've spotted with Shanghai Dazhong Public Utilities(Group)Ltd (including 2 which shouldn't be ignored).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks .

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

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