Dividend Investors: Don't Be Too Quick To Buy Sichuan Gangtong Medical Equipment Group Co., Ltd (SZSE:301515) 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 Sichuan Gangtong Medical Equipment Group Co., Ltd (SZSE:301515) is about to trade ex-dividend in the next two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Sichuan Gangtong Medical Equipment Group's shares on or after the 19th of December, you won't be eligible to receive the dividend, when it is paid on the 19th of December.

The company's next dividend payment will be CN¥0.12 per share, and in the last 12 months, the company paid a total of CN¥0.26 per share. Based on the last year's worth of payments, Sichuan Gangtong Medical Equipment Group stock has a trailing yield of around 1.2% on the current share price of CN¥20.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Sichuan Gangtong Medical Equipment Group

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. That's why it's good to see Sichuan Gangtong Medical Equipment Group paying out a modest 34% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution.

Click here to see how much of its profit Sichuan Gangtong Medical Equipment Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Sichuan Gangtong Medical Equipment Group's 5.4% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Unfortunately Sichuan Gangtong Medical Equipment Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy Sichuan Gangtong Medical Equipment Group for the upcoming dividend? Sichuan Gangtong Medical Equipment Group's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Sichuan Gangtong Medical Equipment Group don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 1 warning sign with Sichuan Gangtong Medical Equipment Group and understanding them should be part of your investment process.

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.