Jiangsu Huachang Chemical (SZSE:002274) Could Be A Buy For Its Upcoming Dividend

Jiangsu Huachang Chemical Co., Ltd (SZSE:002274) stock is about to trade ex-dividend in 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Jiangsu Huachang Chemical's shares before the 31st of May in order to receive the dividend, which the company will pay on the 31st of May.

The company's upcoming dividend is CN¥0.30 a share, following on from the last 12 months, when the company distributed a total of CN¥0.30 per share to shareholders. Based on the last year's worth of payments, Jiangsu Huachang Chemical stock has a trailing yield of around 3.7% on the current share price of CN¥8.10. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Jiangsu Huachang Chemical

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 Jiangsu Huachang Chemical's payout ratio is modest, at just 37% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.

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 how much of its profit Jiangsu Huachang Chemical 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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Jiangsu Huachang Chemical has grown its earnings rapidly, up 40% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last eight years, Jiangsu Huachang Chemical has lifted its dividend by approximately 21% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Jiangsu Huachang Chemical for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Jiangsu Huachang Chemical paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Jiangsu Huachang Chemical, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Jiangsu Huachang Chemical is facing. Case in point: We've spotted 1 warning sign for Jiangsu Huachang Chemical you should be aware of.

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.