There's A Lot To Like About Jinghua Pharmaceutical Group's (SZSE:002349) Upcoming CN¥0.092 Dividend

Jinghua Pharmaceutical Group Co., Ltd. (SZSE:002349) is about to trade ex-dividend in the next 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Jinghua Pharmaceutical Group's shares before the 12th of June in order to receive the dividend, which the company will pay on the 12th of June.

The company's next dividend payment will be CN¥0.092 per share, and in the last 12 months, the company paid a total of CN¥0.092 per share. Calculating the last year's worth of payments shows that Jinghua Pharmaceutical Group has a trailing yield of 1.3% on the current share price of CN¥7.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Jinghua Pharmaceutical Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Jinghua Pharmaceutical Group paying out a modest 32% of its earnings. 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. The good news is it paid out just 23% of its free cash flow in the last year.

It's positive to see that Jinghua Pharmaceutical Group'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 how much of its profit Jinghua Pharmaceutical Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Jinghua Pharmaceutical Group's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Jinghua Pharmaceutical Group has lifted its dividend by approximately 19% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Jinghua Pharmaceutical Group? Earnings per share have been flat over this time, but we're intrigued to see that Jinghua Pharmaceutical Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Jinghua Pharmaceutical Group is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Jinghua Pharmaceutical Group for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Jinghua Pharmaceutical Group that we recommend you consider before investing in the business.

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.