Do These 3 Checks Before Buying ZheJiang AoKang Shoes Co.,Ltd. (SHSE:603001) For Its Upcoming Dividend

ZheJiang AoKang Shoes Co.,Ltd. (SHSE:603001) is about to trade ex-dividend in the next 3 days. 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. 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 ZheJiang AoKang ShoesLtd's shares on or after the 20th of September will not receive the dividend, which will be paid on the 20th of September.

The company's next dividend payment will be CN¥0.12 per share, and in the last 12 months, the company paid a total of CN¥0.24 per share. Based on the last year's worth of payments, ZheJiang AoKang ShoesLtd stock has a trailing yield of around 5.8% on the current share price of CN¥4.14. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for ZheJiang AoKang ShoesLtd

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. ZheJiang AoKang ShoesLtd lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If ZheJiang AoKang ShoesLtd didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 0.4% of its free cash flow as dividends last year, which is conservatively low.

Click here to see how much of its profit ZheJiang AoKang ShoesLtd 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. ZheJiang AoKang ShoesLtd was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ZheJiang AoKang ShoesLtd has delivered an average of 0.9% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on ZheJiang AoKang ShoesLtd's balance sheet health here.

To Sum It Up

Is ZheJiang AoKang ShoesLtd an attractive dividend stock, or better left on the shelf? It's hard to get used to ZheJiang AoKang ShoesLtd paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of ZheJiang AoKang ShoesLtd don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for ZheJiang AoKang ShoesLtd (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

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.