Three Days Left Until Anhui Gujing Distillery Co., Ltd. (SZSE:000596) Trades Ex-Dividend

Readers hoping to buy Anhui Gujing Distillery Co., Ltd. (SZSE:000596) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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, Anhui Gujing Distillery investors that purchase the stock on or after the 24th of January will not receive the dividend, which will be paid on the 24th of January.

The company's next dividend payment will be CN¥1.00 per share, on the back of last year when the company paid a total of CN¥4.50 to shareholders. Calculating the last year's worth of payments shows that Anhui Gujing Distillery has a trailing yield of 2.6% on the current share price of CN¥173.42. If you buy this business for its dividend, you should have an idea of whether Anhui Gujing Distillery's dividend is reliable and sustainable. As a result, readers should always check whether Anhui Gujing Distillery has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Anhui Gujing Distillery

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Anhui Gujing Distillery's payout ratio is modest, at just 43% of profit. 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. Over the past year it paid out 153% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Anhui Gujing Distillery does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Anhui Gujing Distillery paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Anhui Gujing Distillery to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Anhui Gujing Distillery has grown its earnings rapidly, up 25% a year 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. Anhui Gujing Distillery has delivered an average of 29% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy Anhui Gujing Distillery for the upcoming dividend? We like that Anhui Gujing Distillery has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. 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.

In light of that, while Anhui Gujing Distillery has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Anhui Gujing Distillery (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

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.