Just Three Days Till Shanghai Hile Bio-Technology Co., Ltd. (SHSE:603718) Will Be Trading Ex-Dividend

Shanghai Hile Bio-Technology Co., Ltd. (SHSE:603718) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase Shanghai Hile Bio-Technology's shares before the 19th of July in order to receive the dividend, which the company will pay on the 19th of July.

The company's next dividend payment will be CN¥0.0287 per share. Last year, in total, the company distributed CN¥0.029 to shareholders. Based on the last year's worth of payments, Shanghai Hile Bio-Technology stock has a trailing yield of around 0.5% on the current share price of CN¥6.02. If you buy this business for its dividend, you should have an idea of whether Shanghai Hile Bio-Technology's dividend is reliable and sustainable. As a result, readers should always check whether Shanghai Hile Bio-Technology has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Shanghai Hile Bio-Technology

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. That's why it's good to see Shanghai Hile Bio-Technology paying out a modest 35% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 223% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Shanghai Hile Bio-Technology paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Shanghai Hile Bio-Technology 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 Shanghai Hile Bio-Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Shanghai Hile Bio-Technology's earnings per share have been growing at 16% a year for the past 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shanghai Hile Bio-Technology has seen its dividend decline 5.1% per annum on average over the past eight years, which is not great to see. Shanghai Hile Bio-Technology is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Shanghai Hile Bio-Technology got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Shanghai Hile Bio-Technology's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Shanghai Hile Bio-Technology 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