Here's What We Like About Chengdu Easton Biopharmaceuticals' (SHSE:688513) Upcoming Dividend

Readers hoping to buy Chengdu Easton Biopharmaceuticals Co., Ltd. (SHSE:688513) 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Chengdu Easton Biopharmaceuticals investors that purchase the stock on or after the 1st of July will not receive the dividend, which will be paid on the 1st of July.

The company's next dividend payment will be CN¥0.58 per share, and in the last 12 months, the company paid a total of CN¥0.58 per share. Last year's total dividend payments show that Chengdu Easton Biopharmaceuticals has a trailing yield of 1.1% on the current share price of CN¥50.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Chengdu Easton Biopharmaceuticals can afford its dividend, and if the dividend could grow.

View our latest analysis for Chengdu Easton Biopharmaceuticals

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. Chengdu Easton Biopharmaceuticals paid out a comfortable 29% of its profit last year. 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. It distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. This is why it's a relief to see Chengdu Easton Biopharmaceuticals earnings per share are up 6.1% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

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, three years ago, Chengdu Easton Biopharmaceuticals has lifted its dividend by approximately 25% a year on average. 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

Should investors buy Chengdu Easton Biopharmaceuticals for the upcoming dividend? Earnings per share have been growing moderately, and Chengdu Easton Biopharmaceuticals is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Chengdu Easton Biopharmaceuticals is halfway there. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Chengdu Easton Biopharmaceuticals has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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