Read This Before Considering China Petroleum Engineering Corporation (SHSE:600339) For Its Upcoming CN¥0.041 Dividend

China Petroleum Engineering Corporation (SHSE:600339) is about to trade ex-dividend in the next 4 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. Thus, you can purchase China Petroleum Engineering's shares before the 10th of July in order to receive the dividend, which the company will pay on the 10th of July.

The company's next dividend payment will be CN¥0.041 per share, on the back of last year when the company paid a total of CN¥0.041 to shareholders. Last year's total dividend payments show that China Petroleum Engineering has a trailing yield of 1.3% on the current share price of CN¥3.13. If you buy this business for its dividend, you should have an idea of whether China Petroleum Engineering's dividend is reliable and sustainable. As a result, readers should always check whether China Petroleum Engineering has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for China Petroleum Engineering

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. Fortunately China Petroleum Engineering's payout ratio is modest, at just 29% of profit. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 4.9% of its cash flow last year.

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?

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. That's why it's not ideal to see China Petroleum Engineering's earnings per share have been shrinking at 4.2% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, China Petroleum Engineering has lifted its dividend by approximately 1.7% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid China Petroleum Engineering? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 1 warning sign for China Petroleum Engineering you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com