Interested In Namchow Food Group (Shanghai)'s (SHSE:605339) Upcoming CN¥0.11 Dividend? You Have Three Days Left

Namchow Food Group (Shanghai) Co., Ltd. (SHSE:605339) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. In other words, investors can purchase Namchow Food Group (Shanghai)'s shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥0.11 per share, on the back of last year when the company paid a total of CN¥0.11 to shareholders. Last year's total dividend payments show that Namchow Food Group (Shanghai) has a trailing yield of 0.7% on the current share price of CN¥16.10. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Namchow Food Group (Shanghai)

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. Namchow Food Group (Shanghai) 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. 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. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 how much of its profit Namchow Food Group (Shanghai) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Namchow Food Group (Shanghai)'s earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Namchow Food Group (Shanghai)'s dividend payments per share have declined at 40% per year on average over the past three years, which is uninspiring.

The Bottom Line

From a dividend perspective, should investors buy or avoid Namchow Food Group (Shanghai)? Earnings per share have been flat over the three-year timeframe we consider, and Namchow Food Group (Shanghai) paid out less than half its earnings and more than half its free cashflow over the last year. Overall, it's hard to get excited about Namchow Food Group (Shanghai) from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 2 warning signs for Namchow Food Group (Shanghai) (1 shouldn't be ignored) you should be aware of.

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.

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

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.