Hunan Valin Steel Co., Ltd. (SZSE:000932) Goes Ex-Dividend Soon

It looks like Hunan Valin Steel Co., Ltd. (SZSE:000932) is about to go ex-dividend in the next 3 days. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Hunan Valin Steel's shares before the 13th of June to receive the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be CN¥0.23 per share, and in the last 12 months, the company paid a total of CN¥0.23 per share. Calculating the last year's worth of payments shows that Hunan Valin Steel has a trailing yield of 4.5% on the current share price of CN¥5.09. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Hunan Valin Steel has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Hunan Valin Steel

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. That's why it's good to see Hunan Valin Steel paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Hunan Valin Steel generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hunan Valin Steel's earnings per share have fallen at approximately 17% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hunan Valin Steel's dividend payments per share have declined at 2.1% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Hunan Valin Steel? Earnings per share have fallen significantly, although at least Hunan Valin Steel paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. 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 Hunan Valin Steel, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 1 warning sign for Hunan Valin Steel that we recommend you consider before investing in the business.

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.