Do These 3 Checks Before Buying Gansu Engineering Consulting Group Co., Ltd. (SZSE:000779) For Its Upcoming Dividend

Readers hoping to buy Gansu Engineering Consulting Group Co., Ltd. (SZSE:000779) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Gansu Engineering Consulting Group's shares before the 25th of July in order to receive the dividend, which the company will pay on the 25th of July.

The company's upcoming dividend is CN¥0.08 a share, following on from the last 12 months, when the company distributed a total of CN¥0.08 per share to shareholders. Last year's total dividend payments show that Gansu Engineering Consulting Group has a trailing yield of 1.3% on the current share price of CN¥6.34. If you buy this business for its dividend, you should have an idea of whether Gansu Engineering Consulting Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Gansu Engineering Consulting Group

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. Gansu Engineering Consulting Group paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Gansu Engineering Consulting Group's earnings per share have been shrinking at 2.1% a year over the previous five years.

Gansu Engineering Consulting Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Gansu Engineering Consulting Group has seen its dividend decline 26% per annum on average over the past three years, which is not great to see. 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

Is Gansu Engineering Consulting Group worth buying for its dividend? Gansu Engineering Consulting Group's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. Bottom line: Gansu Engineering Consulting Group has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Gansu Engineering Consulting Group. Case in point: We've spotted 2 warning signs for Gansu Engineering Consulting Group you should be aware of.

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