Do These 3 Checks Before Buying Henan Shuanghui Investment & Development Co.,Ltd. (SZSE:000895) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Henan Shuanghui Investment & Development Co.,Ltd. (SZSE:000895) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Henan Shuanghui Investment & DevelopmentLtd's shares on or after the 26th of April will not receive the dividend, which will be paid on the 26th of April.

The company's next dividend payment will be CN¥0.70 per share, on the back of last year when the company paid a total of CN¥1.45 to shareholders. Based on the last year's worth of payments, Henan Shuanghui Investment & DevelopmentLtd has a trailing yield of 5.3% on the current stock price of CN¥27.19. 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 investigate whether Henan Shuanghui Investment & DevelopmentLtd can afford its dividend, and if the dividend could grow.

See our latest analysis for Henan Shuanghui Investment & DevelopmentLtd

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. Last year Henan Shuanghui Investment & DevelopmentLtd paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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 last year, it paid out dividends equivalent to 218% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Henan Shuanghui Investment & DevelopmentLtd is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Cash is slightly more important than profit from a dividend perspective, but given Henan Shuanghui Investment & DevelopmentLtd's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 explains why we're not overly excited about Henan Shuanghui Investment & DevelopmentLtd's flat earnings 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Henan Shuanghui Investment & DevelopmentLtd has delivered 12% dividend growth per year on average over the past 10 years.

To Sum It Up

Has Henan Shuanghui Investment & DevelopmentLtd got what it takes to maintain its dividend payments? It's been unable to generate earnings growth, yet is paying out an uncomfortably high percentage of both its profits (104%) and cash flow (218%) as dividends. It's not that we think Henan Shuanghui Investment & DevelopmentLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Henan Shuanghui Investment & DevelopmentLtd don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for Henan Shuanghui Investment & DevelopmentLtd 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.

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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.