Don't Buy Guangdong Jiaying Pharmaceutical Co., Ltd (SZSE:002198) For Its Next Dividend Without Doing These Checks

It looks like Guangdong Jiaying Pharmaceutical Co., Ltd (SZSE:002198) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Guangdong Jiaying Pharmaceutical's shares on or after the 21st of June, you won't be eligible to receive the dividend, when it is paid on the 21st of June.

The company's next dividend payment will be CN¥0.05 per share. Last year, in total, the company distributed CN¥0.05 to shareholders. Based on the last year's worth of payments, Guangdong Jiaying Pharmaceutical stock has a trailing yield of around 0.7% on the current share price of CN¥7.37. 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 Guangdong Jiaying Pharmaceutical can afford its dividend, and if the dividend could grow.

View our latest analysis for Guangdong Jiaying Pharmaceutical

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Guangdong Jiaying Pharmaceutical paid out 93% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

Click here to see how much of its profit Guangdong Jiaying Pharmaceutical paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Guangdong Jiaying Pharmaceutical's earnings per share have dropped 5.3% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Guangdong Jiaying Pharmaceutical has increased its dividend at approximately 2.3% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Guangdong Jiaying Pharmaceutical is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Is Guangdong Jiaying Pharmaceutical worth buying for its dividend? Not only are earnings per share shrinking, but Guangdong Jiaying Pharmaceutical is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

So if you're still interested in Guangdong Jiaying Pharmaceutical despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for Guangdong Jiaying Pharmaceutical and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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