Only Three Days Left To Cash In On Guangdong Hongda Holdings Group's (SZSE:002683) Dividend

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. 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. 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. Accordingly, Guangdong Hongda Holdings Group investors that purchase the stock on or after the 26th of September will not receive the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.56 to shareholders. Last year's total dividend payments show that Guangdong Hongda Holdings Group has a trailing yield of 2.7% on the current share price of CN¥20.61. 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 investigate whether Guangdong Hongda Holdings Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Guangdong Hongda Holdings Group

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. Guangdong Hongda Holdings Group paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Guangdong Hongda Holdings Group generated enough free cash flow to afford its dividend. The company paid out 106% of its free cash flow over the last year, which we think is outside the ideal range 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?

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. It's encouraging to see Guangdong Hongda Holdings Group has grown its earnings rapidly, up 28% 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. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Guangdong Hongda Holdings Group worth buying for its dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 106% of its cashflow, which is uncomfortably high. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

However if you're still interested in Guangdong Hongda Holdings Group as a potential investment, you should definitely consider some of the risks involved with Guangdong Hongda Holdings Group. Case in point: We've spotted 1 warning sign for Guangdong Hongda Holdings Group you should be aware of.

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.