Don't Race Out To Buy Shanghai Belling Co., Ltd. (SHSE:600171) Just Because It's Going Ex-Dividend

Shanghai Belling Co., Ltd. (SHSE:600171) stock is about to trade ex-dividend in 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. This means that investors who purchase Shanghai Belling's shares on or after the 20th of June will not receive the dividend, which will be paid on the 20th of June.

The company's next dividend payment will be CN¥0.10 per share, and in the last 12 months, the company paid a total of CN¥0.10 per share. Based on the last year's worth of payments, Shanghai Belling has a trailing yield of 0.5% on the current stock price of CN¥18.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Shanghai Belling

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shanghai Belling reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Shanghai Belling didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The company paid out 108% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Click here to see how much of its profit Shanghai Belling 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. Shanghai Belling reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shanghai Belling has delivered an average of 17% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Shanghai Belling's balance sheet health here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Shanghai Belling? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." Bottom line: Shanghai Belling has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Shanghai Belling and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Shanghai Belling is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

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