Should You Buy Shandong Lukang Pharmaceutical Co.,Ltd. (SHSE:600789) For Its Upcoming Dividend?

Readers hoping to buy Shandong Lukang Pharmaceutical Co.,Ltd. (SHSE:600789) 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 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. This means that investors who purchase Shandong Lukang PharmaceuticalLtd's shares on or after the 21st of June will not receive the dividend, which will be paid on the 21st of June.

The company's next dividend payment will be CN¥0.09 per share, on the back of last year when the company paid a total of CN¥0.09 to shareholders. Looking at the last 12 months of distributions, Shandong Lukang PharmaceuticalLtd has a trailing yield of approximately 1.2% on its current stock price of CN¥7.62. 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! So we need to investigate whether Shandong Lukang PharmaceuticalLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for Shandong Lukang PharmaceuticalLtd

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. Shandong Lukang PharmaceuticalLtd paid out a comfortable 29% of its profit last year. 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. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Shandong Lukang PharmaceuticalLtd'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 Shandong Lukang PharmaceuticalLtd 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. This is why it's a relief to see Shandong Lukang PharmaceuticalLtd earnings per share are up 9.5% per annum over the last five years. Decent historical earnings per share growth suggests Shandong Lukang PharmaceuticalLtd has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shandong Lukang PharmaceuticalLtd has delivered an average of 29% per year annual increase in its dividend, based on the past seven years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Shandong Lukang PharmaceuticalLtd an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest, and it's interesting that Shandong Lukang PharmaceuticalLtd is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. To summarise, Shandong Lukang PharmaceuticalLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Shandong Lukang PharmaceuticalLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 3 warning signs for Shandong Lukang PharmaceuticalLtd you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com