Just Three Days Till Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) Will Be Trading Ex-Dividend

Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) stock is about to trade ex-dividend in 3 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Ganzhou Tengyuan Cobalt New Material's shares on or after the 30th of May will not receive the dividend, which will be paid on the 30th of May.

The company's next dividend payment will be CN¥1.50 per share, on the back of last year when the company paid a total of CN¥1.50 to shareholders. Based on the last year's worth of payments, Ganzhou Tengyuan Cobalt New Material has a trailing yield of 3.4% on the current stock price of CN¥44.29. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Ganzhou Tengyuan Cobalt New Material

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. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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. Ganzhou Tengyuan Cobalt New Material paid out more free cash flow than it generated - 141%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Ganzhou Tengyuan Cobalt New Material does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Ganzhou Tengyuan Cobalt New Material paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Ganzhou Tengyuan Cobalt New Material's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Ganzhou Tengyuan Cobalt New Material's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ganzhou Tengyuan Cobalt New Material's dividend payments per share have declined at 6.2% per year on average over the past two years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Has Ganzhou Tengyuan Cobalt New Material got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Ganzhou Tengyuan Cobalt New Material paid out a much higher percentage of its free cash flow, which makes us uncomfortable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about Ganzhou Tengyuan Cobalt New Material's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 3 warning signs for Ganzhou Tengyuan Cobalt New Material you should know about.

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.