Only Four Days Left To Cash In On Chengdu Shengbang SealsLtd's (SZSE:301233) 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 Chengdu Shengbang Seals Co.,Ltd. (SZSE:301233) is about to go ex-dividend in just 4 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. 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. Thus, you can purchase Chengdu Shengbang SealsLtd's shares before the 12th of June in order to receive the dividend, which the company will pay on the 12th of June.

The company's next dividend payment will be CN¥0.442 per share, and in the last 12 months, the company paid a total of CN¥0.44 per share. Based on the last year's worth of payments, Chengdu Shengbang SealsLtd stock has a trailing yield of around 1.2% on the current share price of CN¥36.73. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Chengdu Shengbang SealsLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Chengdu Shengbang SealsLtd paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Chengdu Shengbang SealsLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 340% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Chengdu Shengbang SealsLtd intends to continue funding this dividend, or if it could be forced to cut the payment.

Chengdu Shengbang SealsLtd 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.

While Chengdu Shengbang SealsLtd'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 Chengdu Shengbang SealsLtd 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 Chengdu Shengbang SealsLtd 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Chengdu Shengbang SealsLtd'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.

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

The Bottom Line

Is Chengdu Shengbang SealsLtd worth buying for its dividend? We like that Chengdu Shengbang SealsLtd has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. To summarise, Chengdu Shengbang SealsLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Chengdu Shengbang SealsLtd is facing. For example, Chengdu Shengbang SealsLtd has 2 warning signs (and 1 which shouldn't be ignored) we think 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.