Why It Might Not Make Sense To Buy Haoxiangni Health Food Co.,Ltd. (SZSE:002582) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Haoxiangni Health Food Co.,Ltd. (SZSE:002582) is about to trade ex-dividend in the next four 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. Thus, you can purchase Haoxiangni Health FoodLtd's shares before the 27th of May in order to receive the dividend, which the company will pay on the 27th of May.

The company's upcoming dividend is CN¥0.60 a share, following on from the last 12 months, when the company distributed a total of CN¥0.60 per share to shareholders. Last year's total dividend payments show that Haoxiangni Health FoodLtd has a trailing yield of 8.5% on the current share price of CN¥7.02. 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 Haoxiangni Health FoodLtd

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. Haoxiangni Health FoodLtd reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 25% of its free cash flow last year.

Click here to see how much of its profit Haoxiangni Health FoodLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Haoxiangni Health FoodLtd reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Haoxiangni Health FoodLtd has increased its dividend at approximately 28% a year on average.

Remember, you can always get a snapshot of Haoxiangni Health FoodLtd's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy Haoxiangni Health FoodLtd for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Haoxiangni Health FoodLtd.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Haoxiangni Health FoodLtd. Case in point: We've spotted 2 warning signs for Haoxiangni Health FoodLtd 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.