Here's What We Like About Beijing Sun-Novo Pharmaceutical Research's (SHSE:688621) Upcoming Dividend

It looks like Beijing Sun-Novo Pharmaceutical Research Co., Ltd. (SHSE:688621) is about to go ex-dividend in the next four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Beijing Sun-Novo Pharmaceutical Research's shares on or after the 9th of July will not receive the dividend, which will be paid on the 9th of July.

The company's next dividend payment will be CN¥0.165 per share, on the back of last year when the company paid a total of CN¥0.16 to shareholders. Looking at the last 12 months of distributions, Beijing Sun-Novo Pharmaceutical Research has a trailing yield of approximately 0.4% on its current stock price of CN¥39.99. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Beijing Sun-Novo Pharmaceutical Research

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. Beijing Sun-Novo Pharmaceutical Research has a low and conservative payout ratio of just 8.8% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Beijing Sun-Novo Pharmaceutical Research'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Beijing Sun-Novo Pharmaceutical Research's earnings have been skyrocketing, up 50% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Beijing Sun-Novo Pharmaceutical Research has seen its dividend decline 6.6% per annum on average over the past two years, which is not great to see. Beijing Sun-Novo Pharmaceutical Research 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.

The Bottom Line

Is Beijing Sun-Novo Pharmaceutical Research an attractive dividend stock, or better left on the shelf? Beijing Sun-Novo Pharmaceutical Research has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past two years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

Curious what other investors think of Beijing Sun-Novo Pharmaceutical Research? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

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