One Day Left To Buy Hangzhou Guotai Environmental Protection Technology Co.,Ltd. (SZSE:301203) Before The Ex-Dividend Date

It looks like Hangzhou Guotai Environmental Protection Technology Co.,Ltd. (SZSE:301203) is about to go ex-dividend in the next day or so. 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. 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. Thus, you can purchase Hangzhou Guotai Environmental Protection TechnologyLtd's shares before the 28th of May in order to receive the dividend, which the company will pay on the 28th of May.

The company's next dividend payment will be CN¥1.50 per share. Last year, in total, the company distributed CN¥1.50 to shareholders. Based on the last year's worth of payments, Hangzhou Guotai Environmental Protection TechnologyLtd stock has a trailing yield of around 4.6% on the current share price of CN¥32.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Hangzhou Guotai Environmental Protection TechnologyLtd

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 85% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Hangzhou Guotai Environmental Protection TechnologyLtd generated enough free cash flow to afford its dividend. Over the past year it paid out 122% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Hangzhou Guotai Environmental Protection TechnologyLtd 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 Hangzhou Guotai Environmental Protection TechnologyLtd'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 Hangzhou Guotai Environmental Protection TechnologyLtd's ability to maintain its dividend.

Click here to see how much of its profit Hangzhou Guotai Environmental Protection TechnologyLtd paid out over the last 12 months.

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, Hangzhou Guotai Environmental Protection TechnologyLtd's earnings per share have been growing at 19% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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

The Bottom Line

Is Hangzhou Guotai Environmental Protection TechnologyLtd an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Hangzhou Guotai Environmental Protection TechnologyLtd paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's hard to get excited about Hangzhou Guotai Environmental Protection TechnologyLtd from a dividend perspective.

So if you want to do more digging on Hangzhou Guotai Environmental Protection TechnologyLtd, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 1 warning sign for Hangzhou Guotai Environmental Protection TechnologyLtd you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.