Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Anhui Sunhere Pharmaceutical Excipients Co.,Ltd. (SZSE:300452) is about to trade 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Anhui Sunhere Pharmaceutical ExcipientsLtd investors that purchase the stock on or after the 29th of May will not receive the dividend, which will be paid on the 29th of May.

The company's next dividend payment will be CN¥0.25 per share, and in the last 12 months, the company paid a total of CN¥0.25 per share. Last year's total dividend payments show that Anhui Sunhere Pharmaceutical ExcipientsLtd has a trailing yield of 1.9% on the current share price of CN¥13.02. 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 Anhui Sunhere Pharmaceutical ExcipientsLtd has been able to grow its dividends, or if the dividend might be cut.

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 Anhui Sunhere Pharmaceutical ExcipientsLtd's payout ratio is modest, at just 36% of profit. 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. It paid out more than half (75%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Anhui Sunhere Pharmaceutical ExcipientsLtd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Anhui Sunhere Pharmaceutical ExcipientsLtd's earnings per share have risen 19% per annum over the last five years. Anhui Sunhere Pharmaceutical ExcipientsLtd is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Anhui Sunhere Pharmaceutical ExcipientsLtd also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Anhui Sunhere Pharmaceutical ExcipientsLtd has lifted its dividend by approximately 26% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Anhui Sunhere Pharmaceutical ExcipientsLtd for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Anhui Sunhere Pharmaceutical ExcipientsLtd paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while Anhui Sunhere Pharmaceutical ExcipientsLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Anhui Sunhere Pharmaceutical ExcipientsLtd you should be aware of.

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.

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.