China BlueChemical Ltd. (HKG:3983) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 2nd of June in order to be eligible for this dividend, which will be paid on the 30th of June.
China BlueChemical's next dividend payment will be HK$0.076 per share, on the back of last year when the company paid a total of HK$0.076 to shareholders. Based on the last year's worth of payments, China BlueChemical has a trailing yield of 6.9% on the current stock price of HK$1.19. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
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. China BlueChemical paid out a comfortable 50% of its profit last year. 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 last year, it paid out more than three-quarters (89%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that China BlueChemical'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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see China BlueChemical's earnings have been skyrocketing, up 46% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, China BlueChemical has lifted its dividend by approximately 0.8% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Should investors buy China BlueChemical for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, China BlueChemical paid out less than half its earnings and a bit over half its free cash flow. China BlueChemical looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while China BlueChemical has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 3 warning signs for China BlueChemical you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.