Here's What We Like About Hangzhou Zhengqiang's (SZSE:301119) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hangzhou Zhengqiang Corporation Limited (SZSE:301119) is about to trade ex-dividend in the next two 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. 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. Thus, you can purchase Hangzhou Zhengqiang's shares before the 19th of June in order to receive the dividend, which the company will pay on the 19th of June.

The company's next dividend payment will be CN¥0.10 per share. Last year, in total, the company distributed CN¥0.10 to shareholders. Looking at the last 12 months of distributions, Hangzhou Zhengqiang has a trailing yield of approximately 0.5% on its current stock price of CN¥18.67. 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 Hangzhou Zhengqiang can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Hangzhou Zhengqiang

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hangzhou Zhengqiang is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Hangzhou Zhengqiang'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 Hangzhou Zhengqiang 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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Hangzhou Zhengqiang's earnings per share have been growing at 11% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Hangzhou Zhengqiang has increased its dividend at approximately 32% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Hangzhou Zhengqiang for the upcoming dividend? Hangzhou Zhengqiang has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Hangzhou Zhengqiang looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Hangzhou Zhengqiang is facing. Every company has risks, and we've spotted 1 warning sign for Hangzhou Zhengqiang you should know about.

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

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