Don't Race Out To Buy Jiangsu Canopus Wisdom Medical Technology Co.,Ltd. (SZSE:301290) Just Because It's Going Ex-Dividend

Jiangsu Canopus Wisdom Medical Technology Co.,Ltd. (SZSE:301290) stock is about to trade ex-dividend in 3 days. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Jiangsu Canopus Wisdom Medical TechnologyLtd's shares on or after the 13th of June, you won't be eligible to receive the dividend, when it is paid on the 13th of June.

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 Jiangsu Canopus Wisdom Medical TechnologyLtd has a trailing yield of 2.9% on the current share price of CN¥20.39. 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.

See our latest analysis for Jiangsu Canopus Wisdom Medical TechnologyLtd

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Jiangsu Canopus Wisdom Medical TechnologyLtd paid out 62% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Jiangsu Canopus Wisdom Medical TechnologyLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 211% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Jiangsu Canopus Wisdom Medical TechnologyLtd 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.

While Jiangsu Canopus Wisdom Medical TechnologyLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Jiangsu Canopus Wisdom Medical TechnologyLtd's ability to maintain its dividend.

Click here to see how much of its profit Jiangsu Canopus Wisdom Medical TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 Jiangsu Canopus Wisdom Medical TechnologyLtd's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

We'd also point out that Jiangsu Canopus Wisdom Medical TechnologyLtd issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Given that Jiangsu Canopus Wisdom Medical TechnologyLtd has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Should investors buy Jiangsu Canopus Wisdom Medical TechnologyLtd for the upcoming dividend? It's not great to see earnings per share have been flat and that the company paid out an uncomfortably high percentage of its cash flow over the past year. Cash flows are typically more volatile than earnings, but this is still not what we like to see. Bottom line: Jiangsu Canopus Wisdom Medical TechnologyLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Jiangsu Canopus Wisdom Medical TechnologyLtd and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 1 warning sign for Jiangsu Canopus Wisdom Medical TechnologyLtd that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.