Here's What We Like About Kehua HoldingsLtd's (SHSE:603161) Upcoming Dividend

Kehua Holdings Co.,Ltd (SHSE:603161) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Kehua HoldingsLtd's shares on or after the 10th of July will not receive the dividend, which will be paid on the 10th of July.

The company's upcoming dividend is CN¥0.285 a share, following on from the last 12 months, when the company distributed a total of CN¥0.28 per share to shareholders. Based on the last year's worth of payments, Kehua HoldingsLtd has a trailing yield of 2.0% on the current stock price of CN¥14.52. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Kehua HoldingsLtd

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. That's why it's good to see Kehua HoldingsLtd paying out a modest 27% of its earnings. A useful secondary check can be to evaluate whether Kehua HoldingsLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 13% of its free cash flow last year.

It's positive to see that Kehua HoldingsLtd'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 how much of its profit Kehua HoldingsLtd paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Kehua HoldingsLtd, with earnings per share up 5.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last six years, Kehua HoldingsLtd has lifted its dividend by approximately 2.9% 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

Has Kehua HoldingsLtd got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Kehua HoldingsLtd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Kehua HoldingsLtd is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Kehua HoldingsLtd has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 3 warning signs for Kehua HoldingsLtd (2 are concerning) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com