It looks like China Cyts Tours Holding Co., Ltd. (SHSE:600138) is about to go ex-dividend in the next 2 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. 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, China Cyts Tours Holding investors that purchase the stock on or after the 16th of May will not receive the dividend, which will be paid on the 16th of May.
The company's next dividend payment will be CN¥0.085 per share. Last year, in total, the company distributed CN¥0.085 to shareholders. Based on the last year's worth of payments, China Cyts Tours Holding stock has a trailing yield of around 0.8% on the current share price of CN¥10.57. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. That's why it's good to see China Cyts Tours Holding paying out a modest 36% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 25% of its free cash flow in the past year.
It's positive to see that China Cyts Tours Holding'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 falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. China Cyts Tours Holding's earnings per share have fallen at approximately 22% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China Cyts Tours Holding's dividend payments per share have declined at 1.6% per year on average over the past 10 years, which is uninspiring.
Final Takeaway
Is China Cyts Tours Holding worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy China Cyts Tours Holding today.
While it's tempting to invest in China Cyts Tours Holding for the dividends alone, you should always be mindful of the risks involved. For example - China Cyts Tours Holding has 2 warning signs we think you should be aware of.
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.