Should Income Investors Look At Shanghai Baosteel Packaging Co., Ltd. (SHSE:601968) Before Its Ex-Dividend?

Readers hoping to buy Shanghai Baosteel Packaging Co., Ltd. (SHSE:601968) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Shanghai Baosteel Packaging's shares on or after the 13th of June, you won't be eligible to receive the dividend, when it is paid on the 13th of June.

The company's next dividend payment will be CN¥0.098 per share. Last year, in total, the company distributed CN¥0.098 to shareholders. Calculating the last year's worth of payments shows that Shanghai Baosteel Packaging has a trailing yield of 1.9% on the current share price of CN¥5.05. If you buy this business for its dividend, you should have an idea of whether Shanghai Baosteel Packaging'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 Shanghai Baosteel Packaging

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Shanghai Baosteel Packaging is paying out an acceptable 52% of its profit, a common payout level among 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. Shanghai Baosteel Packaging paid out more free cash flow than it generated - 119%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Shanghai Baosteel Packaging's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Shanghai Baosteel Packaging's ability to maintain its dividend.

Click here to see how much of its profit Shanghai Baosteel Packaging paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Shanghai Baosteel Packaging's earnings have been skyrocketing, up 30% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, eight years ago, Shanghai Baosteel Packaging has lifted its dividend by approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Shanghai Baosteel Packaging? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Shanghai Baosteel Packaging paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So if you want to do more digging on Shanghai Baosteel Packaging, you'll find it worthwhile knowing the risks that this stock faces. For example - Shanghai Baosteel Packaging has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.