Read This Before Considering Zhejiang Langdi Group Co., Ltd. (SHSE:603726) For Its Upcoming CN¥0.40 Dividend

Zhejiang Langdi Group Co., Ltd. (SHSE:603726) is about to trade ex-dividend in the next two 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Zhejiang Langdi Group's shares on or after the 1st of July will not receive the dividend, which will be paid on the 1st of July.

The company's next dividend payment will be CN¥0.40 per share, on the back of last year when the company paid a total of CN¥0.40 to shareholders. Looking at the last 12 months of distributions, Zhejiang Langdi Group has a trailing yield of approximately 3.0% on its current stock price of CN¥13.19. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Zhejiang Langdi Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Zhejiang Langdi Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Zhejiang Langdi Group paid out 56% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out more than half (50%) of its free cash flow in the past year, which is within an average range for most companies.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Zhejiang Langdi Group, with earnings per share up 3.9% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang Langdi Group has delivered an average of 9.3% per year annual increase in its dividend, based on the past seven years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Zhejiang Langdi Group an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Zhejiang Langdi Group paid out a bit over half of its earnings and free cash flow last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Zhejiang Langdi Group's dividend merits.

However if you're still interested in Zhejiang Langdi Group as a potential investment, you should definitely consider some of the risks involved with Zhejiang Langdi Group. Case in point: We've spotted 1 warning sign for Zhejiang Langdi Group you should be aware of.

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