Should Income Investors Look At Longkou Union Chemical Co., Ltd. (SZSE:301209) Before Its Ex-Dividend?

Readers hoping to buy Longkou Union Chemical Co., Ltd. (SZSE:301209) 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Longkou Union Chemical's shares on or after the 6th of June, you won't be eligible to receive the dividend, when it is paid on the 6th of June.

The company's next dividend payment will be CN¥0.12 per share. Last year, in total, the company distributed CN¥0.12 to shareholders. Based on the last year's worth of payments, Longkou Union Chemical stock has a trailing yield of around 0.5% on the current share price of CN¥24.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Longkou Union Chemical

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Longkou Union Chemical paying out a modest 25% of its earnings. A useful secondary check can be to evaluate whether Longkou Union Chemical generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 40% 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 Longkou Union Chemical paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Longkou Union Chemical's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Unfortunately Longkou Union Chemical has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Is Longkou Union Chemical worth buying for its dividend? While it's not great to see that earnings per share are effectively flat over the one-year period we checked, at least the payout ratios are low and conservative. In summary, it's hard to get excited about Longkou Union Chemical from a dividend perspective.

In light of that, while Longkou Union Chemical has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Longkou Union Chemical that we recommend you consider before investing in the business.

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.