Anhui Guangxin Agrochemical Co., Ltd. (SHSE:603599) Will Pay A CN¥0.60 Dividend In Two Days

It looks like Anhui Guangxin Agrochemical Co., Ltd. (SHSE:603599) is about to go ex-dividend in the next 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. In other words, investors can purchase Anhui Guangxin Agrochemical's shares before the 25th of July in order to be eligible for the dividend, which will be paid on the 25th of July.

The company's next dividend payment will be CN¥0.60 per share. Last year, in total, the company distributed CN¥0.60 to shareholders. Based on the last year's worth of payments, Anhui Guangxin Agrochemical stock has a trailing yield of around 4.9% on the current share price of CN¥12.17. If you buy this business for its dividend, you should have an idea of whether Anhui Guangxin Agrochemical'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 Anhui Guangxin Agrochemical

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Anhui Guangxin Agrochemical paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Anhui Guangxin Agrochemical generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 232% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Anhui Guangxin Agrochemical is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Anhui Guangxin Agrochemical does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Anhui Guangxin Agrochemical'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 Anhui Guangxin Agrochemical'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Anhui Guangxin Agrochemical's earnings per share have been growing at 19% 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Anhui Guangxin Agrochemical has lifted its dividend by approximately 44% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

From a dividend perspective, should investors buy or avoid Anhui Guangxin Agrochemical? We like that Anhui Guangxin Agrochemical has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Anhui Guangxin Agrochemical's dividend merits.

So while Anhui Guangxin Agrochemical looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For instance, we've identified 2 warning signs for Anhui Guangxin Agrochemical (1 shouldn't be ignored) 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.

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