Yantai Zhenghai Biotechnology Co., Ltd. (SZSE:300653) Stock Goes Ex-Dividend In Just Three Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Yantai Zhenghai Biotechnology Co., Ltd. (SZSE:300653) is about to go ex-dividend in just 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. Thus, you can purchase Yantai Zhenghai Biotechnology's shares before the 14th of June in order to receive the dividend, which the company will pay on the 14th of June.

The company's upcoming dividend is CN¥0.801804 a share, following on from the last 12 months, when the company distributed a total of CN¥0.80 per share to shareholders. Last year's total dividend payments show that Yantai Zhenghai Biotechnology has a trailing yield of 3.6% on the current share price of CN¥22.53. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Yantai Zhenghai Biotechnology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 82% 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 concerned if earnings began to decline. 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. It paid out 80% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Yantai Zhenghai Biotechnology's earnings per share have risen 16% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Yantai Zhenghai Biotechnology has delivered 24% dividend growth per year on average over the past six years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Yantai Zhenghai Biotechnology an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Yantai Zhenghai Biotechnology's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 82% and 80% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Yantai Zhenghai Biotechnology's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 1 warning sign with Yantai Zhenghai Biotechnology and understanding them should be part of your investment process.

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.