We Wouldn't Be Too Quick To Buy Guangzhou Seagull Kitchen and Bath Products Co., Ltd. (SZSE:002084) Before It Goes Ex-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 Guangzhou Seagull Kitchen and Bath Products Co., Ltd. (SZSE:002084) is about to go ex-dividend in just 2 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Thus, you can purchase Guangzhou Seagull Kitchen and Bath Products' shares before the 26th of June in order to receive the dividend, which the company will pay on the 26th of June.

The company's next dividend payment will be CN¥0.030082 per share, and in the last 12 months, the company paid a total of CN¥0.03 per share. Calculating the last year's worth of payments shows that Guangzhou Seagull Kitchen and Bath Products has a trailing yield of 1.2% on the current share price of CN¥2.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Guangzhou Seagull Kitchen and Bath Products

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Guangzhou Seagull Kitchen and Bath Products reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

Click here to see how much of its profit Guangzhou Seagull Kitchen and Bath Products paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Guangzhou Seagull Kitchen and Bath Products 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Guangzhou Seagull Kitchen and Bath Products has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on Guangzhou Seagull Kitchen and Bath Products's balance sheet health here.

The Bottom Line

Should investors buy Guangzhou Seagull Kitchen and Bath Products for the upcoming dividend? It's hard to get used to Guangzhou Seagull Kitchen and Bath Products paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Guangzhou Seagull Kitchen and Bath Products despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 2 warning signs for Guangzhou Seagull Kitchen and Bath Products (of which 1 is a bit unpleasant!) 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.

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