Why You Might Be Interested In Chengdu Hongqi Chain Co.,Ltd. (SZSE:002697) For Its Upcoming Dividend

Chengdu Hongqi Chain Co.,Ltd. (SZSE:002697) is about to trade ex-dividend in the next three 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. In other words, investors can purchase Chengdu Hongqi ChainLtd's shares before the 14th of May in order to be eligible for the dividend, which will be paid on the 14th of May.

The company's next dividend payment will be CN¥0.124 per share, on the back of last year when the company paid a total of CN¥0.12 to shareholders. Based on the last year's worth of payments, Chengdu Hongqi ChainLtd has a trailing yield of 2.3% on the current stock price of CN¥5.45. If you buy this business for its dividend, you should have an idea of whether Chengdu Hongqi ChainLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Chengdu Hongqi ChainLtd

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. Fortunately Chengdu Hongqi ChainLtd's payout ratio is modest, at just 29% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Chengdu Hongqi ChainLtd'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Chengdu Hongqi ChainLtd's earnings per share have risen 12% per annum over the last five years. Chengdu Hongqi ChainLtd has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chengdu Hongqi ChainLtd has delivered an average of 16% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Chengdu Hongqi ChainLtd an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Chengdu Hongqi ChainLtd paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Chengdu Hongqi ChainLtd, and we would prioritise taking a closer look at it.

So while Chengdu Hongqi ChainLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Chengdu Hongqi ChainLtd has 1 warning sign 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.