Should You Buy Shanghai Ganglian E-Commerce Holdings Co., Ltd. (SZSE:300226) For Its Upcoming Dividend?

Shanghai Ganglian E-Commerce Holdings Co., Ltd. (SZSE:300226) is about to trade ex-dividend in the next four 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. This means that investors who purchase Shanghai Ganglian E-Commerce Holdings' shares on or after the 29th of May will not receive the dividend, which will be paid on the 29th of May.

The company's next dividend payment will be CN¥0.08 per share, on the back of last year when the company paid a total of CN¥0.08 to shareholders. Looking at the last 12 months of distributions, Shanghai Ganglian E-Commerce Holdings has a trailing yield of approximately 0.4% on its current stock price of CN¥19.49. If you buy this business for its dividend, you should have an idea of whether Shanghai Ganglian E-Commerce Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Shanghai Ganglian E-Commerce Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Shanghai Ganglian E-Commerce Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Shanghai Ganglian E-Commerce Holdings is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 9.2% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Shanghai Ganglian E-Commerce Holdings'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 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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Shanghai Ganglian E-Commerce Holdings's earnings per share have been growing at 14% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Shanghai Ganglian E-Commerce Holdings has lifted its dividend by approximately 15% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Shanghai Ganglian E-Commerce Holdings for the upcoming dividend? It's great that Shanghai Ganglian E-Commerce Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Shanghai Ganglian E-Commerce Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Shanghai Ganglian E-Commerce Holdings for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Shanghai Ganglian E-Commerce Holdings you should know about.

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.