Is It Worth Considering Hangzhou Tianyuan Pet Products CO., LTD (SZSE:301335) For Its Upcoming Dividend?

Readers hoping to buy Hangzhou Tianyuan Pet Products CO., LTD (SZSE:301335) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Hangzhou Tianyuan Pet Products' shares before the 18th of June in order to receive the dividend, which the company will pay on the 18th of June.

The company's upcoming dividend is CN¥0.35 a share, following on from the last 12 months, when the company distributed a total of CN¥0.35 per share to shareholders. Calculating the last year's worth of payments shows that Hangzhou Tianyuan Pet Products has a trailing yield of 2.1% on the current share price of CN¥16.90. If you buy this business for its dividend, you should have an idea of whether Hangzhou Tianyuan Pet Products's dividend is reliable and sustainable. So we need to investigate whether Hangzhou Tianyuan Pet Products can afford its dividend, and if the dividend could grow.

View our latest analysis for Hangzhou Tianyuan Pet Products

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. Hangzhou Tianyuan Pet Products paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.

It's positive to see that Hangzhou Tianyuan Pet Products'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 shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Hangzhou Tianyuan Pet Products's 8.2% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Hangzhou Tianyuan Pet Products also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Unfortunately Hangzhou Tianyuan Pet Products 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

Is Hangzhou Tianyuan Pet Products an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Hangzhou Tianyuan Pet Products from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Hangzhou Tianyuan Pet Products, you should know about the other risks facing this business. In terms of investment risks, we've identified 2 warning signs with Hangzhou Tianyuan Pet Products 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.