We Wouldn't Be Too Quick To Buy Changhua Holding Group Co., Ltd. (SHSE:605018) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Changhua Holding Group Co., Ltd. (SHSE:605018) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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 Changhua Holding Group's shares on or after the 12th of June will not receive the dividend, which will be paid on the 12th of June.

The company's next dividend payment will be CN¥0.20 per share, and in the last 12 months, the company paid a total of CN¥0.20 per share. Looking at the last 12 months of distributions, Changhua Holding Group has a trailing yield of approximately 2.2% on its current stock price of CN¥9.29. 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 Changhua Holding Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Changhua Holding Group

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. Changhua Holding Group paid out 60% of its earnings to investors last year, a normal payout level for most businesses. 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 54% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Changhua Holding Group'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 Changhua Holding Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Changhua Holding Group's earnings per share have fallen at approximately 10% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Changhua Holding Group's dividend payments are broadly unchanged compared to where they were three years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

Is Changhua Holding Group an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Changhua Holding Group's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think Changhua Holding Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Changhua Holding Group as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Changhua Holding Group is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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.