Just Three Days Till Shandong Hongyu Precision Machinery Co., Ltd. (SZSE:002890) Will Be Trading Ex-Dividend

Shandong Hongyu Precision Machinery Co., Ltd. (SZSE:002890) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Meaning, you will need to purchase Shandong Hongyu Precision Machinery's shares before the 28th of June to receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be CN¥0.10 per share, and in the last 12 months, the company paid a total of CN¥0.10 per share. Last year's total dividend payments show that Shandong Hongyu Precision Machinery has a trailing yield of 1.0% on the current share price of CN¥10.52. If you buy this business for its dividend, you should have an idea of whether Shandong Hongyu Precision Machinery's dividend is reliable and sustainable. As a result, readers should always check whether Shandong Hongyu Precision Machinery has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Shandong Hongyu Precision Machinery

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shandong Hongyu Precision Machinery paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Shandong Hongyu Precision 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 Shandong Hongyu Precision Machinery paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Shandong Hongyu Precision Machinery's 14% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Shandong Hongyu Precision Machinery has lifted its dividend by approximately 22% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is Shandong Hongyu Precision Machinery worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least Shandong Hongyu Precision Machinery's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think Shandong Hongyu Precision Machinery is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Shandong Hongyu Precision Machinery despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 2 warning signs with Shandong Hongyu Precision Machinery and understanding them should be part of your investment process.

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.

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