Is It Smart To Buy Hangzhou Greenda Electronic Materials Co., Ltd. (SHSE:603931) Before It Goes Ex-Dividend?

Hangzhou Greenda Electronic Materials Co., Ltd. (SHSE:603931) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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 Hangzhou Greenda Electronic Materials' shares on or after the 20th of June will not receive the dividend, which will be paid on the 20th of June.

The company's upcoming dividend is CN¥0.265 a share, following on from the last 12 months, when the company distributed a total of CN¥0.26 per share to shareholders. Looking at the last 12 months of distributions, Hangzhou Greenda Electronic Materials has a trailing yield of approximately 1.1% on its current stock price of CN¥23.73. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hangzhou Greenda Electronic Materials

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. Fortunately Hangzhou Greenda Electronic Materials's payout ratio is modest, at just 29% 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. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Hangzhou Greenda Electronic Materials's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Hangzhou Greenda Electronic Materials paid out over the last 12 months.

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. This is why it's a relief to see Hangzhou Greenda Electronic Materials earnings per share are up 8.8% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

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, three years ago, Hangzhou Greenda Electronic Materials has lifted its dividend by approximately 20% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Hangzhou Greenda Electronic Materials an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Hangzhou Greenda Electronic Materials is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Hangzhou Greenda Electronic Materials is halfway there. It's a promising combination that should mark this company worthy of closer attention.

So while Hangzhou Greenda Electronic Materials looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Hangzhou Greenda Electronic Materials and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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