Is It Worth Considering Ningbo United Group Co.,Ltd. (SHSE:600051) For Its Upcoming Dividend?

It looks like Ningbo United Group Co.,Ltd. (SHSE:600051) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Ningbo United GroupLtd's shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥0.12 per share, and in the last 12 months, the company paid a total of CN¥0.12 per share. Looking at the last 12 months of distributions, Ningbo United GroupLtd has a trailing yield of approximately 2.1% on its current stock price of CN¥5.82. If you buy this business for its dividend, you should have an idea of whether Ningbo United GroupLtd's dividend is reliable and sustainable. So we need to investigate whether Ningbo United GroupLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Ningbo United GroupLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Ningbo United GroupLtd's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether Ningbo United GroupLtd generated enough free cash flow to afford its dividend. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Ningbo United GroupLtd'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 Ningbo United GroupLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Ningbo United GroupLtd's 17% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ningbo United GroupLtd has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Has Ningbo United GroupLtd got what it takes to maintain its dividend payments? Ningbo United GroupLtd has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ningbo United GroupLtd today.

While it's tempting to invest in Ningbo United GroupLtd for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Ningbo United GroupLtd (at least 1 which is significant), and understanding them should be part of your investment process.

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.