Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co., Ltd. (HKG:1349) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 2nd of April in order to receive the dividend, which the company will pay on the 21st of August.
Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's next dividend payment will be HK$0.07 per share. Last year, in total, the company distributed HK$0.07 to shareholders. Calculating the last year's worth of payments shows that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical has a trailing yield of 1.6% on the current share price of HK$4.85. If you buy this business for its dividend, you should have an idea of whether Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's dividend is reliable and sustainable. As a result, readers should always check whether Shanghai Fudan-Zhangjiang Bio-Pharmaceutical has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's payout ratio is modest, at just 28% of profit. A useful secondary check can be to evaluate whether Shanghai Fudan-Zhangjiang Bio-Pharmaceutical generated enough free cash flow to afford its dividend. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's earnings per share have been growing at 14% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Shanghai Fudan-Zhangjiang Bio-Pharmaceutical has increased its dividend at approximately 7.0% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Shanghai Fudan-Zhangjiang Bio-Pharmaceutical for the upcoming dividend? It's great that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Shanghai Fudan-Zhangjiang Bio-Pharmaceutical looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Want to learn more about Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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