Fujian South Highway Machinery Co., Ltd. (SHSE:603280) Pays A CN¥0.34 Dividend In Just Three Days

Fujian South Highway Machinery Co., Ltd. (SHSE:603280) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Fujian South Highway Machinery's shares before the 4th of June in order to be eligible for the dividend, which will be paid on the 4th of June.

The company's next dividend payment will be CN¥0.34 per share. Last year, in total, the company distributed CN¥0.34 to shareholders. Based on the last year's worth of payments, Fujian South Highway Machinery has a trailing yield of 1.6% on the current stock price of CN¥20.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Fujian South Highway Machinery can afford its dividend, and if the dividend could grow.

View our latest analysis for Fujian South Highway Machinery

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. Fujian South Highway Machinery paid out a comfortable 30% of its profit last year. 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. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Fujian South Highway Machinery'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 Fujian South Highway Machinery paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fujian South Highway Machinery's earnings per share have fallen at approximately 14% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

We'd also point out that Fujian South Highway Machinery issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Given that Fujian South Highway Machinery has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

From a dividend perspective, should investors buy or avoid Fujian South Highway Machinery? Earnings per share have fallen significantly, although at least Fujian South Highway Machinery paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that being said, if dividends aren't your biggest concern with Fujian South Highway Machinery, you should know about the other risks facing this business. For example, Fujian South Highway Machinery has 2 warning signs (and 1 which is significant) we think you should know about.

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.