Don't Buy Earth-Panda Advanced Magnetic Material Co.,Ltd. (SHSE:688077) For Its Next Dividend Without Doing These Checks

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 Earth-Panda Advanced Magnetic Material Co.,Ltd. (SHSE:688077) is about to go ex-dividend in just three 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. In other words, investors can purchase Earth-Panda Advanced Magnetic MaterialLtd's shares before the 13th of June in order to be eligible for the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be CN¥0.18 per share, and in the last 12 months, the company paid a total of CN¥0.18 per share. Based on the last year's worth of payments, Earth-Panda Advanced Magnetic MaterialLtd has a trailing yield of 1.2% on the current stock price of CN¥15.45. 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! As a result, readers should always check whether Earth-Panda Advanced Magnetic MaterialLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Earth-Panda Advanced Magnetic MaterialLtd

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. An unusually high payout ratio of 294% of its profit suggests something is happening other than the usual distribution of profits to shareholders. 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. Over the past year it paid out 130% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given Earth-Panda Advanced Magnetic MaterialLtd's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Earth-Panda Advanced Magnetic MaterialLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Earth-Panda Advanced Magnetic MaterialLtd's earnings per share have plummeted approximately 34% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Earth-Panda Advanced Magnetic MaterialLtd's dividend payments per share have declined at 12% per year on average over the past three years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Is Earth-Panda Advanced Magnetic MaterialLtd worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (294%) and cash flow as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not that we think Earth-Panda Advanced Magnetic MaterialLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Earth-Panda Advanced Magnetic MaterialLtd don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 5 warning signs we've spotted with Earth-Panda Advanced Magnetic MaterialLtd (including 1 which is a bit concerning).

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.