Don't Buy China Reform Culture Holdings Co., Ltd. (SHSE:600636) For Its Next Dividend Without Doing These Checks

It looks like China Reform Culture Holdings Co., Ltd. (SHSE:600636) is about to go ex-dividend in the next 2 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. 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. Accordingly, China Reform Culture Holdings investors that purchase the stock on or after the 20th of June will not receive the dividend, which will be paid on the 20th of June.

The company's next dividend payment will be CN¥0.04 per share, on the back of last year when the company paid a total of CN¥0.04 to shareholders. Based on the last year's worth of payments, China Reform Culture Holdings has a trailing yield of 0.5% on the current stock price of CN¥7.88. 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.

Check out our latest analysis for China Reform Culture Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China Reform Culture Holdings's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

Click here to see how much of its profit China Reform Culture Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. China Reform Culture Holdings 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China Reform Culture Holdings has seen its dividend decline 4.0% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

We update our analysis on China Reform Culture Holdings every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid China Reform Culture Holdings? It's hard to get used to China Reform Culture Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: China Reform Culture Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with China Reform Culture Holdings. To help with this, we've discovered 1 warning sign for China Reform Culture Holdings that you should be aware of before investing in their shares.

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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