Don't Buy Ping An Insurance (Group) Company of China, Ltd. (SHSE:601318) For Its Next Dividend Without Doing These Checks

It looks like Ping An Insurance (Group) Company of China, Ltd. (SHSE:601318) is about to go ex-dividend in the next 2 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 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. Therefore, if you purchase Ping An Insurance (Group) Company of China's shares on or after the 26th of July, you won't be eligible to receive the dividend, when it is paid on the 26th of July.

The company's next dividend payment will be CN¥1.50 per share, and in the last 12 months, the company paid a total of CN¥2.43 per share. Looking at the last 12 months of distributions, Ping An Insurance (Group) Company of China has a trailing yield of approximately 5.7% on its current stock price of CN¥42.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Ping An Insurance (Group) Company of China has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Ping An Insurance (Group) Company of China

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ping An Insurance (Group) Company of China paid out 51% of its earnings to investors last year, a normal payout level for most businesses.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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. 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 Ping An Insurance (Group) Company of China's 5.1% 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ping An Insurance (Group) Company of China has delivered an average of 22% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Is Ping An Insurance (Group) Company of China worth buying for its dividend? We're not overly enthused to see Ping An Insurance (Group) Company of China's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Ping An Insurance (Group) Company of China. Our analysis shows 1 warning sign for Ping An Insurance (Group) Company of China and you should be aware of it before buying any shares.

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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