Here's Why We're Wary Of Buying Tibet Duo Rui Pharmaceutical's (SZSE:301075) For Its Upcoming Dividend

Tibet Duo Rui Pharmaceutical Co., Ltd. (SZSE:301075) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Tibet Duo Rui Pharmaceutical's shares before the 31st of May in order to be eligible for the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be CN¥0.125 per share, on the back of last year when the company paid a total of CN¥0.12 to shareholders. Last year's total dividend payments show that Tibet Duo Rui Pharmaceutical has a trailing yield of 0.7% on the current share price of CN¥18.86. 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.

Check out our latest analysis for Tibet Duo Rui Pharmaceutical

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tibet Duo Rui Pharmaceutical paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. 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.

Click here to see how much of its profit Tibet Duo Rui Pharmaceutical paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Tibet Duo Rui Pharmaceutical's earnings per share have plummeted approximately 46% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tibet Duo Rui Pharmaceutical's dividend payments per share have declined at 55% per year on average over the past two years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Is Tibet Duo Rui Pharmaceutical an attractive dividend stock, or better left on the shelf? Tibet Duo Rui Pharmaceutical had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Tibet Duo Rui Pharmaceutical don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 4 warning signs we've spotted with Tibet Duo Rui Pharmaceutical (including 1 which is concerning).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.