Should Income Investors Look At Guangzhou Holike Creative Home Co.,Ltd. (SHSE:603898) Before Its Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Guangzhou Holike Creative Home Co.,Ltd. (SHSE:603898) is about to go ex-dividend in just three days. 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 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. This means that investors who purchase Guangzhou Holike Creative HomeLtd's shares on or after the 6th of June will not receive the dividend, which will be paid on the 6th of June.

The company's next dividend payment will be CN¥0.21 per share, on the back of last year when the company paid a total of CN¥0.21 to shareholders. Based on the last year's worth of payments, Guangzhou Holike Creative HomeLtd stock has a trailing yield of around 2.5% on the current share price of CN¥8.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Guangzhou Holike Creative HomeLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for Guangzhou Holike Creative HomeLtd

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. That's why it's good to see Guangzhou Holike Creative HomeLtd paying out a modest 30% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Guangzhou Holike Creative HomeLtd's earnings per share have fallen at approximately 11% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Guangzhou Holike Creative HomeLtd has delivered 11% dividend growth per year on average over the past nine years.

To Sum It Up

Is Guangzhou Holike Creative HomeLtd an attractive dividend stock, or better left on the shelf? Earnings per share have fallen significantly, although at least Guangzhou Holike Creative HomeLtd paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Guangzhou Holike Creative HomeLtd's dividend merits.

If you're not too concerned about Guangzhou Holike Creative HomeLtd's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example - Guangzhou Holike Creative HomeLtd has 3 warning signs we think you should be aware of.

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.