Guangdong Hongda Holdings Group Co., Ltd. (SZSE:002683) Pays A CN¥0.56 Dividend In Just Three Days

Readers hoping to buy Guangdong Hongda Holdings Group Co., Ltd. (SZSE:002683) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Guangdong Hongda Holdings Group's shares on or after the 10th of May, you won't be eligible to receive the dividend, when it is paid on the 10th of May.

The company's upcoming dividend is CN¥0.56 a share, following on from the last 12 months, when the company distributed a total of CN¥0.56 per share to shareholders. Looking at the last 12 months of distributions, Guangdong Hongda Holdings Group has a trailing yield of approximately 2.6% on its current stock price of CN¥21.32. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Guangdong Hongda Holdings Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Guangdong Hongda Holdings Group paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. 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 92% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While Guangdong Hongda Holdings Group'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 Guangdong Hongda Holdings Group'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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Guangdong Hongda Holdings Group has grown its earnings rapidly, up 26% a year for the past five years. Earnings have been growing quickly, 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 10 years, Guangdong Hongda Holdings Group has lifted its dividend by approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Guangdong Hongda Holdings Group for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Guangdong Hongda Holdings Group paid out a much higher percentage of its free cash flow, which makes us uncomfortable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you want to look further into Guangdong Hongda Holdings Group, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Guangdong Hongda Holdings Group and understanding them should be part of your investment process.

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.