Read This Before Considering Boai NKY Medical Holdings Ltd. (SZSE:300109) For Its Upcoming CN¥1.00 Dividend

Boai NKY Medical Holdings Ltd. (SZSE:300109) stock is about to trade ex-dividend in three days. 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. In other words, investors can purchase Boai NKY Medical Holdings' shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥1.00 per share, on the back of last year when the company paid a total of CN¥1.00 to shareholders. Looking at the last 12 months of distributions, Boai NKY Medical Holdings has a trailing yield of approximately 4.8% on its current stock price of CN¥20.87. 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 Boai NKY Medical Holdings

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. Boai NKY Medical Holdings paid out more than half (63%) 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. The company paid out 98% 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 Boai NKY Medical Holdings'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. Cash is king, as they say, and were Boai NKY Medical Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Boai NKY Medical Holdings 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Boai NKY Medical Holdings has grown its earnings rapidly, up 31% 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. Since the start of our data, 10 years ago, Boai NKY Medical Holdings has lifted its dividend by approximately 36% 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 Boai NKY Medical Holdings worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Boai NKY Medical Holdings paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Boai NKY Medical Holdings's dividend merits.

If you're not too concerned about Boai NKY Medical Holdings's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. In terms of investment risks, we've identified 1 warning sign with Boai NKY Medical Holdings and understanding them should be part of your investment process.

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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.