Hubei Zhenhua Chemical Co.,Ltd. (SHSE:603067) Will Pay A CN¥0.183 Dividend In Three Days

Hubei Zhenhua Chemical Co.,Ltd. (SHSE:603067) is about to trade ex-dividend in the next 3 days. 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. This means that investors who purchase Hubei Zhenhua ChemicalLtd's shares on or after the 6th of June will not receive the dividend, which will be paid on the 6th of June.

The company's upcoming dividend is CN¥0.183 a share, following on from the last 12 months, when the company distributed a total of CN¥0.18 per share to shareholders. Looking at the last 12 months of distributions, Hubei Zhenhua ChemicalLtd has a trailing yield of approximately 1.7% on its current stock price of CN¥10.98. If you buy this business for its dividend, you should have an idea of whether Hubei Zhenhua ChemicalLtd's dividend is reliable and sustainable. As a result, readers should always check whether Hubei Zhenhua ChemicalLtd has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Hubei Zhenhua ChemicalLtd

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. Hubei Zhenhua ChemicalLtd paid out a comfortable 26% of its profit last year. 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. Hubei Zhenhua ChemicalLtd paid out more free cash flow than it generated - 130%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Hubei Zhenhua ChemicalLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Hubei Zhenhua ChemicalLtd's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Hubei Zhenhua ChemicalLtd's earnings per share have been growing at 16% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hubei Zhenhua ChemicalLtd has delivered an average of 19% per year annual increase in its dividend, based on the past seven years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Should investors buy Hubei Zhenhua ChemicalLtd for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Hubei Zhenhua ChemicalLtd's dividend merits.

While it's tempting to invest in Hubei Zhenhua ChemicalLtd for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Hubei Zhenhua ChemicalLtd 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.