Should Income Investors Look At Shandong Gold Phoenix Co.,Ltd (SHSE:603586) Before Its Ex-Dividend?

It looks like Shandong Gold Phoenix Co.,Ltd (SHSE:603586) is about to go ex-dividend in the next four 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Shandong Gold PhoenixLtd's shares before the 5th of June to receive the dividend, which will be paid on the 5th of June.

The company's next dividend payment will be CN¥0.45 per share, on the back of last year when the company paid a total of CN¥0.45 to shareholders. Based on the last year's worth of payments, Shandong Gold PhoenixLtd has a trailing yield of 3.6% on the current stock price of CN¥12.40. 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 investigate whether Shandong Gold PhoenixLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shandong Gold PhoenixLtd

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. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 80% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Shandong Gold PhoenixLtd'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 Shandong Gold PhoenixLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Shandong Gold PhoenixLtd, with earnings per share up 5.4% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past six years, Shandong Gold PhoenixLtd has increased its dividend at approximately 2.0% a year on average.

The Bottom Line

Has Shandong Gold PhoenixLtd got what it takes to maintain its dividend payments? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall, it's hard to get excited about Shandong Gold PhoenixLtd from a dividend perspective.

However if you're still interested in Shandong Gold PhoenixLtd as a potential investment, you should definitely consider some of the risks involved with Shandong Gold PhoenixLtd. For example, we've found 3 warning signs for Shandong Gold PhoenixLtd (1 is potentially serious!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.