Do These 3 Checks Before Buying Shanghai Golden Union Commercial Management Co.,Ltd. (SHSE:603682) For Its Upcoming Dividend

It looks like Shanghai Golden Union Commercial Management Co.,Ltd. (SHSE:603682) is about to go ex-dividend in the next 4 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. Thus, you can purchase Shanghai Golden Union Commercial ManagementLtd's shares before the 9th of October in order to receive the dividend, which the company will pay on the 9th of October.

The company's next dividend payment will be CN¥0.22 per share, on the back of last year when the company paid a total of CN¥0.44 to shareholders. Based on the last year's worth of payments, Shanghai Golden Union Commercial ManagementLtd has a trailing yield of 9.7% on the current stock price of CN¥4.53. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Shanghai Golden Union Commercial ManagementLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Shanghai Golden Union Commercial ManagementLtd paid out 280% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Shanghai Golden Union Commercial ManagementLtd fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Shanghai Golden Union Commercial ManagementLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Shanghai Golden Union Commercial ManagementLtd's earnings per share have plummeted approximately 30% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shanghai Golden Union Commercial ManagementLtd's dividend payments per share have declined at 13% per year on average over the past four years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Is Shanghai Golden Union Commercial ManagementLtd worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out 280% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Shanghai Golden Union Commercial ManagementLtd don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 4 warning signs for Shanghai Golden Union Commercial ManagementLtd (1 doesn't sit too well with us) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.