Is It Worth Considering Haisco Pharmaceutical Group Co., Ltd. (SZSE:002653) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Haisco Pharmaceutical Group Co., Ltd. (SZSE:002653) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Haisco Pharmaceutical Group's shares on or after the 24th of January will not receive the dividend, which will be paid on the 24th of January.

The company's next dividend payment will be CN¥0.135 per share, on the back of last year when the company paid a total of CN¥0.29 to shareholders. Calculating the last year's worth of payments shows that Haisco Pharmaceutical Group has a trailing yield of 0.9% on the current share price of CN¥31.99. If you buy this business for its dividend, you should have an idea of whether Haisco Pharmaceutical Group'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 Haisco Pharmaceutical Group

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. Its dividend payout ratio is 80% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Haisco Pharmaceutical Group generated enough free cash flow to afford its dividend. It paid out an unsustainably high 436% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While Haisco Pharmaceutical Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Haisco Pharmaceutical Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Haisco Pharmaceutical Group earnings per share are up 6.7% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Haisco Pharmaceutical Group has increased its dividend at approximately 1.5% a year on average.

Final Takeaway

Should investors buy Haisco Pharmaceutical Group for the upcoming dividend? Haisco Pharmaceutical Group is paying out a reasonable percentage of its income and an uncomfortably high 436% of its cash flow as dividends. At least earnings per share have been growing steadily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Haisco Pharmaceutical Group.

With that being said, if you're still considering Haisco Pharmaceutical Group as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for Haisco Pharmaceutical Group that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.