Be Sure To Check Out Sichuan Kelun Pharmaceutical Co., Ltd. (SZSE:002422) Before It Goes Ex-Dividend

Sichuan Kelun Pharmaceutical Co., Ltd. (SZSE:002422) is about to trade ex-dividend in the next 2 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Sichuan Kelun Pharmaceutical investors that purchase the stock on or after the 29th of May will not receive the dividend, which will be paid on the 29th of May.

The company's next dividend payment will be CN¥0.80 per share, and in the last 12 months, the company paid a total of CN¥0.80 per share. Looking at the last 12 months of distributions, Sichuan Kelun Pharmaceutical has a trailing yield of approximately 2.4% on its current stock price of CN¥33.47. 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.

See our latest analysis for Sichuan Kelun Pharmaceutical

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Sichuan Kelun Pharmaceutical's payout ratio is modest, at just 44% of profit. A useful secondary check can be to evaluate whether Sichuan Kelun Pharmaceutical generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Sichuan Kelun Pharmaceutical'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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Sichuan Kelun Pharmaceutical's earnings per share have been growing at 15% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sichuan Kelun Pharmaceutical has delivered 25% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Sichuan Kelun Pharmaceutical an attractive dividend stock, or better left on the shelf? It's great that Sichuan Kelun Pharmaceutical is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Sichuan Kelun Pharmaceutical, and we would prioritise taking a closer look at it.

While it's tempting to invest in Sichuan Kelun Pharmaceutical for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Sichuan Kelun Pharmaceutical you should know about.

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.