Anhui Huangshan Capsule Co., Ltd. (SZSE:002817) Looks Interesting, And It's About To Pay A Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Anhui Huangshan Capsule Co., Ltd. (SZSE:002817) is about to go ex-dividend in just 2 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. Meaning, you will need to purchase Anhui Huangshan Capsule's shares before the 27th of June to receive the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be CN¥0.085 per share, and in the last 12 months, the company paid a total of CN¥0.06 per share. Last year's total dividend payments show that Anhui Huangshan Capsule has a trailing yield of 1.1% on the current share price of CN¥5.45. 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 investigate whether Anhui Huangshan Capsule can afford its dividend, and if the dividend could grow.

See our latest analysis for Anhui Huangshan Capsule

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Anhui Huangshan Capsule's payout ratio is modest, at just 27% of profit. A useful secondary check can be to evaluate whether Anhui Huangshan Capsule generated enough free cash flow to afford its dividend. The good news is it paid out just 24% of its free cash flow in the last year.

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 Anhui Huangshan Capsule paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Anhui Huangshan Capsule earnings per share are up 7.7% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, Anhui Huangshan Capsule has lifted its dividend by approximately 6.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Anhui Huangshan Capsule? Earnings per share have been growing moderately, and Anhui Huangshan Capsule is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Anhui Huangshan Capsule is being conservative with its dividend payouts and could still perform reasonably over the long run. Anhui Huangshan Capsule looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Anhui Huangshan Capsule is facing. For example, we've found 1 warning sign for Anhui Huangshan Capsule that we recommend you consider before investing in the business.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com