Do These 3 Checks Before Buying Shanghai Conglin Environmental Protection Technology Co., Ltd. (SHSE:688370) For Its Upcoming Dividend

Readers hoping to buy Shanghai Conglin Environmental Protection Technology Co., Ltd. (SHSE:688370) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Shanghai Conglin Environmental Protection Technology investors that purchase the stock on or after the 3rd of June will not receive the dividend, which will be paid on the 3rd of June.

The company's next dividend payment will be CN¥0.36 per share, and in the last 12 months, the company paid a total of CN¥0.36 per share. Based on the last year's worth of payments, Shanghai Conglin Environmental Protection Technology stock has a trailing yield of around 2.0% on the current share price of CN¥17.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Shanghai Conglin Environmental Protection Technology

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. Shanghai Conglin Environmental Protection Technology paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 244% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Shanghai Conglin Environmental Protection Technology is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Shanghai Conglin Environmental Protection Technology does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Shanghai Conglin Environmental Protection Technology's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Shanghai Conglin Environmental Protection Technology's ability to maintain its dividend.

Click here to see how much of its profit Shanghai Conglin Environmental Protection Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Shanghai Conglin Environmental Protection Technology's earnings per share have plummeted approximately 38% a year over the previous five years.

Given that Shanghai Conglin Environmental Protection Technology has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

From a dividend perspective, should investors buy or avoid Shanghai Conglin Environmental Protection Technology? 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. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Shanghai Conglin Environmental Protection Technology.

With that in mind though, if the poor dividend characteristics of Shanghai Conglin Environmental Protection Technology don't faze you, it's worth being mindful of the risks involved with this business. Be aware that Shanghai Conglin Environmental Protection Technology is showing 4 warning signs in our investment analysis, and 1 of those can't be ignored...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.