Do These 3 Checks Before Buying Nanjing King-Friend Biochemical Pharmaceutical Co.,Ltd. (SHSE:603707) For Its Upcoming Dividend

Readers hoping to buy Nanjing King-Friend Biochemical Pharmaceutical Co.,Ltd. (SHSE:603707) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Nanjing King-Friend Biochemical PharmaceuticalLtd investors that purchase the stock on or after the 8th of July will not receive the dividend, which will be paid on the 8th of July.

The company's next dividend payment will be CN¥0.10 per share. Last year, in total, the company distributed CN¥0.10 to shareholders. Last year's total dividend payments show that Nanjing King-Friend Biochemical PharmaceuticalLtd has a trailing yield of 0.9% on the current share price of CN¥11.24. 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.

Check out our latest analysis for Nanjing King-Friend Biochemical PharmaceuticalLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nanjing King-Friend Biochemical PharmaceuticalLtd's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Nanjing King-Friend Biochemical PharmaceuticalLtd didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 19% of its free cash flow in the last year.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Nanjing King-Friend Biochemical PharmaceuticalLtd reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, six years ago, Nanjing King-Friend Biochemical PharmaceuticalLtd has lifted its dividend by approximately 16% a year on average.

Remember, you can always get a snapshot of Nanjing King-Friend Biochemical PharmaceuticalLtd's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Has Nanjing King-Friend Biochemical PharmaceuticalLtd got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Nanjing King-Friend Biochemical PharmaceuticalLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Nanjing King-Friend Biochemical PharmaceuticalLtd and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 1 warning sign with Nanjing King-Friend Biochemical PharmaceuticalLtd and understanding them should be part of your investment process.

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.

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