There's A Lot To Like About Shandong Head GroupLtd's (SZSE:002810) Upcoming CN¥0.15 Dividend

It looks like Shandong Head Group Co.,Ltd. (SZSE:002810) is about to go ex-dividend in the next 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. Therefore, if you purchase Shandong Head GroupLtd's shares on or after the 3rd of January, you won't be eligible to receive the dividend, when it is paid on the 3rd of January.

The company's next dividend payment will be CN¥0.15 per share, and in the last 12 months, the company paid a total of CN¥0.20 per share. Based on the last year's worth of payments, Shandong Head GroupLtd stock has a trailing yield of around 1.5% on the current share price of CN¥13.33. If you buy this business for its dividend, you should have an idea of whether Shandong Head GroupLtd's dividend is reliable and sustainable. So we need to investigate whether Shandong Head GroupLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shandong Head GroupLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Shandong Head GroupLtd paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Shandong Head GroupLtd generated enough free cash flow to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level 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 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Shandong Head GroupLtd's earnings per share have been growing at 19% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Shandong Head GroupLtd has lifted its dividend by approximately 10% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Has Shandong Head GroupLtd got what it takes to maintain its dividend payments? It's great that Shandong Head GroupLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Shandong Head GroupLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Shandong Head GroupLtd has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Shandong Head GroupLtd has 2 warning signs we think you should be aware of.

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.