Hunan Fangsheng Pharmaceutical Co., Ltd. (SHSE:603998) Pays A CN¥0.06 Dividend In Just One Day

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hunan Fangsheng Pharmaceutical Co., Ltd. (SHSE:603998) is about to trade ex-dividend in the next couple of days. The ex-dividend date is commonly two business days 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Hunan Fangsheng Pharmaceutical's shares before the 5th of March in order to receive the dividend, which the company will pay on the 5th of March.

The company's next dividend payment will be CN¥0.06 per share. Last year, in total, the company distributed CN¥0.25 to shareholders. Last year's total dividend payments show that Hunan Fangsheng Pharmaceutical has a trailing yield of 2.7% on the current share price of CN¥9.12. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Hunan Fangsheng Pharmaceutical

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Hunan Fangsheng Pharmaceutical paying out a modest 40% of its earnings. 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. Hunan Fangsheng Pharmaceutical paid out more free cash flow than it generated - 120%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Hunan Fangsheng Pharmaceutical paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Hunan Fangsheng Pharmaceutical's ability to maintain its dividend.

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

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. It's encouraging to see Hunan Fangsheng Pharmaceutical has grown its earnings rapidly, up 30% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Hunan Fangsheng Pharmaceutical has lifted its dividend by approximately 23% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Hunan Fangsheng Pharmaceutical worth buying for its dividend? 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. In summary, it's hard to get excited about Hunan Fangsheng Pharmaceutical from a dividend perspective.

On that note, you'll want to research what risks Hunan Fangsheng Pharmaceutical is facing. Every company has risks, and we've spotted 2 warning signs for Hunan Fangsheng Pharmaceutical you should know about.

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.

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

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.