Should Income Investors Look At Hailir Pesticides and Chemicals Group Co.,Ltd. (SHSE:603639) Before Its Ex-Dividend?

Hailir Pesticides and Chemicals Group Co.,Ltd. (SHSE:603639) is about to trade ex-dividend in the next 3 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. Thus, you can purchase Hailir Pesticides and Chemicals GroupLtd's shares before the 18th of July in order to receive the dividend, which the company will pay on the 18th of July.

The company's next dividend payment will be CN¥0.50 per share, and in the last 12 months, the company paid a total of CN¥0.50 per share. Last year's total dividend payments show that Hailir Pesticides and Chemicals GroupLtd has a trailing yield of 4.2% on the current share price of CN¥11.81. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Hailir Pesticides and Chemicals GroupLtd

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. Fortunately Hailir Pesticides and Chemicals GroupLtd's payout ratio is modest, at just 41% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 178% of its free cash flow as dividends, which is uncomfortably 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.

Hailir Pesticides and Chemicals GroupLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Hailir Pesticides and Chemicals GroupLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Hailir Pesticides and Chemicals GroupLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Hailir Pesticides and Chemicals GroupLtd's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, Hailir Pesticides and Chemicals GroupLtd has increased its dividend at approximately 29% a year on average.

Final Takeaway

Should investors buy Hailir Pesticides and Chemicals GroupLtd for the upcoming dividend? Earnings per share have barely grown in this time, and although Hailir Pesticides and Chemicals GroupLtd is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. All things considered, we are not particularly enthused about Hailir Pesticides and Chemicals GroupLtd from a dividend perspective.

If you want to look further into Hailir Pesticides and Chemicals GroupLtd, it's worth knowing the risks this business faces. Our analysis shows 1 warning sign for Hailir Pesticides and Chemicals GroupLtd 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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