Read This Before Considering Yabao Pharmaceutical Group Co., Ltd (SHSE:600351) For Its Upcoming CN¥0.15 Dividend

It looks like Yabao Pharmaceutical Group Co., Ltd (SHSE:600351) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Yabao Pharmaceutical Group's shares on or after the 30th of May, you won't be eligible to receive the dividend, when it is paid on the 30th of May.

The company's next dividend payment will be CN¥0.15 per share, on the back of last year when the company paid a total of CN¥0.15 to shareholders. Calculating the last year's worth of payments shows that Yabao Pharmaceutical Group has a trailing yield of 2.3% on the current share price of CN¥6.41. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Yabao Pharmaceutical Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Yabao Pharmaceutical Group paid out 55% of its earnings to investors last year, a normal payout level for most businesses. 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 good news is it paid out just 8.3% of its free cash flow in the last year.

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 Yabao Pharmaceutical Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Yabao Pharmaceutical Group's earnings per share have been shrinking at 4.0% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Yabao Pharmaceutical Group has lifted its dividend by approximately 9.6% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Is Yabao Pharmaceutical Group an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. To summarise, Yabao Pharmaceutical Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Yabao Pharmaceutical Group, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Yabao Pharmaceutical Group and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.