Is It Smart To Buy Tibet Cheezheng Tibetan Medicine Co., Ltd. (SZSE:002287) Before It Goes Ex-Dividend?

Tibet Cheezheng Tibetan Medicine Co., Ltd. (SZSE:002287) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Tibet Cheezheng Tibetan Medicine's shares on or after the 4th of July will not receive the dividend, which will be paid on the 4th of July.

The company's next dividend payment will be CN¥0.48 per share. Last year, in total, the company distributed CN¥0.48 to shareholders. Calculating the last year's worth of payments shows that Tibet Cheezheng Tibetan Medicine has a trailing yield of 2.5% on the current share price of CN¥19.58. If you buy this business for its dividend, you should have an idea of whether Tibet Cheezheng Tibetan Medicine's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Tibet Cheezheng Tibetan Medicine

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. Tibet Cheezheng Tibetan Medicine paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether Tibet Cheezheng Tibetan Medicine generated enough free cash flow to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range 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 how much of its profit Tibet Cheezheng Tibetan Medicine 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Tibet Cheezheng Tibetan Medicine's earnings per share have risen 13% per annum over the last five years. Tibet Cheezheng Tibetan Medicine has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tibet Cheezheng Tibetan Medicine has delivered an average of 5.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Is Tibet Cheezheng Tibetan Medicine an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Tibet Cheezheng Tibetan Medicine paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Tibet Cheezheng Tibetan Medicine, and we would prioritise taking a closer look at it.

While it's tempting to invest in Tibet Cheezheng Tibetan Medicine for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Tibet Cheezheng Tibetan Medicine 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