Interested In Tianjin Tianyao Pharmaceuticals' (SHSE:600488) Upcoming CN¥0.087 Dividend? You Have Three Days Left

Readers hoping to buy Tianjin Tianyao Pharmaceuticals Co., Ltd. (SHSE:600488) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Tianjin Tianyao Pharmaceuticals' shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be CN¥0.087 per share, on the back of last year when the company paid a total of CN¥0.087 to shareholders. Calculating the last year's worth of payments shows that Tianjin Tianyao Pharmaceuticals has a trailing yield of 2.3% on the current share price of CN¥3.74. 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 Tianjin Tianyao Pharmaceuticals

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 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 worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Tianjin Tianyao Pharmaceuticals generated enough free cash flow to afford its dividend. Luckily it paid out just 9.0% of its free cash flow last year.

It's positive to see that Tianjin Tianyao Pharmaceuticals's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Tianjin Tianyao Pharmaceuticals 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. Tianjin Tianyao Pharmaceuticals's earnings per share have fallen at approximately 5.9% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Tianjin Tianyao Pharmaceuticals has increased its dividend at approximately 17% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Tianjin Tianyao Pharmaceuticals is already paying out 89% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Is Tianjin Tianyao Pharmaceuticals worth buying for its dividend? 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. Overall, it's hard to get excited about Tianjin Tianyao Pharmaceuticals from a dividend perspective.

If you want to look further into Tianjin Tianyao Pharmaceuticals, it's worth knowing the risks this business faces. For example, we've found 2 warning signs for Tianjin Tianyao Pharmaceuticals (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

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.