Tianjin Guifaxiang 18th Street Mahua Food Co.,Ltd. (SZSE:002820) Will Pay A CN¥0.20 Dividend In Two Days

It looks like Tianjin Guifaxiang 18th Street Mahua Food Co.,Ltd. (SZSE:002820) is about to go ex-dividend in the next two days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Meaning, you will need to purchase Tianjin Guifaxiang 18th Street Mahua FoodLtd's shares before the 6th of June to receive the dividend, which will be paid on the 6th of June.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Calculating the last year's worth of payments shows that Tianjin Guifaxiang 18th Street Mahua FoodLtd has a trailing yield of 2.4% on the current share price of CN¥8.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Tianjin Guifaxiang 18th Street Mahua 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. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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 46% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Tianjin Guifaxiang 18th Street Mahua FoodLtd'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 how much of its profit Tianjin Guifaxiang 18th Street Mahua FoodLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Tianjin Guifaxiang 18th Street Mahua FoodLtd's earnings per share have fallen at approximately 7.5% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last seven years, Tianjin Guifaxiang 18th Street Mahua FoodLtd has lifted its dividend by approximately 3.6% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is Tianjin Guifaxiang 18th Street Mahua FoodLtd worth buying for its dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So if you want to do more digging on Tianjin Guifaxiang 18th Street Mahua FoodLtd, you'll find it worthwhile knowing the risks that this stock faces. For example, Tianjin Guifaxiang 18th Street Mahua FoodLtd has 2 warning signs (and 1 which is concerning) we think you should know about.

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.