We Wouldn't Be Too Quick To Buy Guangdong Jinma Entertainment Corporation Limited (SZSE:300756) Before It Goes Ex-Dividend

Readers hoping to buy Guangdong Jinma Entertainment Corporation Limited (SZSE:300756) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Guangdong Jinma Entertainment's shares on or after the 7th of June will not receive the dividend, which will be paid on the 7th of June.

The company's upcoming dividend is CN¥0.10 a share, following on from the last 12 months, when the company distributed a total of CN¥0.10 per share to shareholders. Calculating the last year's worth of payments shows that Guangdong Jinma Entertainment has a trailing yield of 0.7% on the current share price of CN¥14.57. If you buy this business for its dividend, you should have an idea of whether Guangdong Jinma Entertainment's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Guangdong Jinma Entertainment

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Guangdong Jinma Entertainment paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Guangdong Jinma Entertainment generated enough free cash flow to afford its dividend.

Click here to see how much of its profit Guangdong Jinma Entertainment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Guangdong Jinma Entertainment's 28% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

We'd also point out that Guangdong Jinma Entertainment issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Guangdong Jinma Entertainment's dividend payments per share have declined at 15% per year on average over the past five 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Guangdong Jinma Entertainment? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Guangdong Jinma Entertainment don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 5 warning signs for Guangdong Jinma Entertainment (of which 1 can't be ignored!) 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.