Do These 3 Checks Before Buying China Shipbuilding Industry Company Limited (SHSE:601989) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that China Shipbuilding Industry Company Limited (SHSE:601989) is about to go ex-dividend in just 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. 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 China Shipbuilding Industry's shares before the 1st of August in order to be eligible for the dividend, which will be paid on the 1st of August.

The company's next dividend payment will be CN¥0.01 per share, on the back of last year when the company paid a total of CN¥0.10 to shareholders. Based on the last year's worth of payments, China Shipbuilding Industry has a trailing yield of 1.8% on the current stock price of CN¥5.64. 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 China Shipbuilding Industry has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for China Shipbuilding Industry

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. China Shipbuilding Industry reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If China Shipbuilding Industry didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 13% of its free cash flow in the last year.

Click here to see how much of its profit China Shipbuilding Industry 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. China Shipbuilding Industry was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, China Shipbuilding Industry has increased its dividend at approximately 8.1% a year on average.

We update our analysis on China Shipbuilding Industry every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is China Shipbuilding Industry worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering China Shipbuilding Industry as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 2 warning signs we've spotted with China Shipbuilding Industry (including 1 which can't be ignored).

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