Should Income Investors Look At Zhongman Petroleum and Natural Gas Group Corp.,Ltd. (SHSE:603619) Before Its Ex-Dividend?

Zhongman Petroleum and Natural Gas Group Corp.,Ltd. (SHSE:603619) is about to trade ex-dividend in the next four 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. This means that investors who purchase Zhongman Petroleum and Natural Gas GroupLtd's shares on or after the 9th of October will not receive the dividend, which will be paid on the 9th of October.

The company's next dividend payment will be CN¥0.43 per share, and in the last 12 months, the company paid a total of CN¥0.86 per share. Last year's total dividend payments show that Zhongman Petroleum and Natural Gas GroupLtd has a trailing yield of 3.9% on the current share price of CN¥21.99. 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 Zhongman Petroleum and Natural Gas GroupLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for Zhongman Petroleum and Natural Gas GroupLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Zhongman Petroleum and Natural Gas GroupLtd paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Zhongman Petroleum and Natural Gas GroupLtd generated enough free cash flow to afford its dividend. The company paid out 97% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While Zhongman Petroleum and Natural Gas GroupLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Zhongman Petroleum and Natural Gas GroupLtd's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Zhongman Petroleum and Natural Gas GroupLtd's earnings have been skyrocketing, up 91% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Zhongman Petroleum and Natural Gas GroupLtd has lifted its dividend by approximately 19% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Zhongman Petroleum and Natural Gas GroupLtd for the upcoming dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 97% of its cashflow, which is uncomfortably high. All things considered, we are not particularly enthused about Zhongman Petroleum and Natural Gas GroupLtd from a dividend perspective.

If you want to look further into Zhongman Petroleum and Natural Gas GroupLtd, it's worth knowing the risks this business faces. Our analysis shows 3 warning signs for Zhongman Petroleum and Natural Gas GroupLtd and you should be aware of these before buying any 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.