We Wouldn't Be Too Quick To Buy Shandong Bohui Paper Industry Co.,Ltd. (SHSE:600966) Before It Goes Ex-Dividend

Shandong Bohui Paper Industry Co.,Ltd. (SHSE:600966) stock is about to trade ex-dividend in 2 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Shandong Bohui Paper IndustryLtd's shares before the 3rd of July in order to be eligible for the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be CN¥0.02941 per share, on the back of last year when the company paid a total of CN¥0.018 to shareholders. Looking at the last 12 months of distributions, Shandong Bohui Paper IndustryLtd has a trailing yield of approximately 0.4% on its current stock price of CN¥4.78. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Shandong Bohui Paper IndustryLtd

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. Shandong Bohui Paper IndustryLtd lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

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. Shandong Bohui Paper IndustryLtd's earnings per share have fallen at approximately 5.1% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

We'd also point out that Shandong Bohui Paper IndustryLtd 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shandong Bohui Paper IndustryLtd's dividend payments per share have declined at 2.5% per year on average over the past seven years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is Shandong Bohui Paper IndustryLtd worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out -4.9% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Shandong Bohui Paper IndustryLtd's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Shandong Bohui Paper IndustryLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Shandong Bohui Paper IndustryLtd and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 1 warning sign for Shandong Bohui Paper IndustryLtd you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com