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 Shaanxi Meibang Pharmaceutical Group Co., Ltd. (SHSE:605033) is about to go ex-dividend in just 2 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. Accordingly, Shaanxi Meibang Pharmaceutical Group investors that purchase the stock on or after the 8th of June will not receive the dividend, which will be paid on the 8th of June.
The company's next dividend payment will be CN¥0.22 per share, and in the last 12 months, the company paid a total of CN¥0.22 per share. Based on the last year's worth of payments, Shaanxi Meibang Pharmaceutical Group stock has a trailing yield of around 1.2% on the current share price of CN¥18.12. If you buy this business for its dividend, you should have an idea of whether Shaanxi Meibang Pharmaceutical Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Shaanxi Meibang Pharmaceutical Group
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. Shaanxi Meibang Pharmaceutical Group has a low and conservative payout ratio of just 24% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 152% 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.
Shaanxi Meibang Pharmaceutical Group does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Shaanxi Meibang Pharmaceutical Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Shaanxi Meibang Pharmaceutical Group's ability to maintain its dividend.
Click here to see how much of its profit Shaanxi Meibang Pharmaceutical Group paid out over the last 12 months.
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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Shaanxi Meibang Pharmaceutical Group earnings per share are up 5.5% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Given that Shaanxi Meibang Pharmaceutical Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Final Takeaway
Has Shaanxi Meibang Pharmaceutical Group got what it takes to maintain its dividend payments? Shaanxi Meibang Pharmaceutical Group delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 152% of its cash flow over the last year, which is a mediocre outcome. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Shaanxi Meibang Pharmaceutical Group's dividend merits.
So if you want to do more digging on Shaanxi Meibang Pharmaceutical Group, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Shaanxi Meibang Pharmaceutical Group and you should be aware of this before buying any shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.