Is It Smart To Buy Rastar Environmental Protection Materials Co., Ltd. (SZSE:300834) Before It Goes Ex-Dividend?

Readers hoping to buy Rastar Environmental Protection Materials Co., Ltd. (SZSE:300834) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. This means that investors who purchase Rastar Environmental Protection Materials' shares on or after the 31st of May will not receive the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be CN¥0.20 per share, and in the last 12 months, the company paid a total of CN¥0.20 per share. Last year's total dividend payments show that Rastar Environmental Protection Materials has a trailing yield of 1.1% on the current share price of CN¥19.04. 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 Rastar Environmental Protection Materials can afford its dividend, and if the dividend could grow.

View our latest analysis for Rastar Environmental Protection Materials

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. Rastar Environmental Protection Materials paid out a comfortable 48% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

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 Rastar Environmental Protection Materials 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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Rastar Environmental Protection Materials earnings per share are up 5.7% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Rastar Environmental Protection Materials's dividend payments per share have declined at 70% per year on average over the past two years, which is uninspiring. Rastar Environmental Protection Materials is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Should investors buy Rastar Environmental Protection Materials for the upcoming dividend? Earnings per share have been growing moderately, and Rastar Environmental Protection Materials 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 Rastar Environmental Protection Materials is being conservative with its dividend payouts and could still perform reasonably over the long run. Rastar Environmental Protection Materials 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 Rastar Environmental Protection Materials is facing. Be aware that Rastar Environmental Protection Materials is showing 2 warning signs in our investment analysis, and 1 of those is concerning...

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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.