Is It Smart To Buy Eastroc Beverage(Group) Co., Ltd. (SHSE:605499) Before It Goes Ex-Dividend?

Eastroc Beverage(Group) Co., Ltd. (SHSE:605499) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Eastroc Beverage(Group)'s shares before the 11th of June to receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be CN¥2.50 per share. Last year, in total, the company distributed CN¥2.50 to shareholders. Based on the last year's worth of payments, Eastroc Beverage(Group) stock has a trailing yield of around 1.1% on the current share price of CN¥228.67. 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.

View our latest analysis for Eastroc Beverage(Group)

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. Eastroc Beverage(Group) paid out a comfortable 45% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Eastroc Beverage(Group)'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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Eastroc Beverage(Group)'s earnings have been skyrocketing, up 55% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Eastroc Beverage(Group) has seen its dividend decline 5.9% per annum on average over the past three years, which is not great to see. Eastroc Beverage(Group) is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Eastroc Beverage(Group) worth buying for its dividend? Eastroc Beverage(Group) has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past three years, but the conservative payout ratio makes the current dividend look sustainable. Eastroc Beverage(Group) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Eastroc Beverage(Group) is facing. Every company has risks, and we've spotted 1 warning sign for Eastroc Beverage(Group) 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.