Only One Day Left To Cash In On Dencare (Chongqing) Oral Care's (SZSE:001328) 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 Dencare (Chongqing) Oral Care Co., Ltd. (SZSE:001328) is about to go ex-dividend in just couple of 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Dencare (Chongqing) Oral Care's shares before the 2nd of July in order to receive the dividend, which the company will pay on the 2nd of July.

The company's upcoming dividend is CN¥0.65 a share, following on from the last 12 months, when the company distributed a total of CN¥0.65 per share to shareholders. Calculating the last year's worth of payments shows that Dencare (Chongqing) Oral Care has a trailing yield of 2.6% on the current share price of CN¥25.30. If you buy this business for its dividend, you should have an idea of whether Dencare (Chongqing) Oral Care's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Dencare (Chongqing) Oral Care

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 76% 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 worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Dencare (Chongqing) Oral Care generated enough free cash flow to afford its dividend. It paid out more than half (72%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Dencare (Chongqing) Oral Care'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Dencare (Chongqing) Oral Care earnings per share are up 7.2% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Given that Dencare (Chongqing) Oral Care has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Is Dencare (Chongqing) Oral Care worth buying for its dividend? Earnings per share have been growing modestly and Dencare (Chongqing) Oral Care paid out a bit over half of its earnings and free cash flow last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Dencare (Chongqing) Oral Care as a potential investment, you should definitely consider some of the risks involved with Dencare (Chongqing) Oral Care. For example, we've found 2 warning signs for Dencare (Chongqing) Oral Care 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.

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