Should You Buy Toread Holdings Group Co., Ltd. (SZSE:300005) For Its Upcoming Dividend?

Toread Holdings Group Co., Ltd. (SZSE:300005) is about to trade ex-dividend in the next two 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Toread Holdings Group's shares on or after the 3rd of July will not receive the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be CN¥0.024 per share, and in the last 12 months, the company paid a total of CN¥0.024 per share. Last year's total dividend payments show that Toread Holdings Group has a trailing yield of 0.5% on the current share price of CN¥5.01. If you buy this business for its dividend, you should have an idea of whether Toread Holdings Group's dividend is reliable and sustainable. So we need to investigate whether Toread Holdings Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Toread Holdings Group

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. Toread Holdings Group is paying out just 17% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 0.4% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Toread Holdings Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Toread Holdings Group has grown its earnings rapidly, up 46% a year for the past five years. Toread Holdings Group looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Toread Holdings Group's dividend payments per share have declined at 16% per year on average over the past 10 years, which is uninspiring. Toread Holdings Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Toread Holdings Group got what it takes to maintain its dividend payments? Toread Holdings Group has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Toread Holdings Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Wondering what the future holds for Toread Holdings Group? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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