Is It Smart To Buy Baimtec Material Co.,Ltd. (SHSE:688563) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Baimtec Material Co.,Ltd. (SHSE:688563) is about to trade ex-dividend in the next 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Baimtec MaterialLtd's shares on or after the 14th of June will not receive the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be CN¥0.345 per share. Last year, in total, the company distributed CN¥0.48 to shareholders. Last year's total dividend payments show that Baimtec MaterialLtd has a trailing yield of 0.9% on the current share price of CN¥53.10. If you buy this business for its dividend, you should have an idea of whether Baimtec MaterialLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Baimtec MaterialLtd

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. Fortunately Baimtec MaterialLtd's payout ratio is modest, at just 33% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 61% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why we're glad to see earnings per share up 14% over the past 12 months. Baimtec MaterialLtd has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

Baimtec MaterialLtd also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Unfortunately Baimtec MaterialLtd has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

From a dividend perspective, should investors buy or avoid Baimtec MaterialLtd? Earnings per share have grown at a nice rate in recent times and over the last year, Baimtec MaterialLtd paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Baimtec MaterialLtd is facing. To help with this, we've discovered 1 warning sign for Baimtec MaterialLtd that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.