Stock Analysis

Is It Worth Considering Shandong Kehui Power Automation Co.,Ltd. (SHSE:688681) For Its Upcoming Dividend?

SHSE:688681
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Shandong Kehui Power Automation Co.,Ltd. (SHSE:688681) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Shandong Kehui Power AutomationLtd's shares before the 5th of June in order to be eligible for the dividend, which will be paid on the 5th 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, Shandong Kehui Power AutomationLtd has a trailing yield of 1.0% on the current stock price of CN¥10.26. If you buy this business for its dividend, you should have an idea of whether Shandong Kehui Power AutomationLtd's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Shandong Kehui Power AutomationLtd

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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.

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 how much of its profit Shandong Kehui Power AutomationLtd paid out over the last 12 months.

historic-dividend
SHSE:688681 Historic Dividend June 2nd 2024

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Shandong Kehui Power AutomationLtd's 12% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shandong Kehui Power AutomationLtd has seen its dividend decline 8.7% per annum on average over the past two years, which is not great to see. 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.

Final Takeaway

Has Shandong Kehui Power AutomationLtd got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's hard to get excited about Shandong Kehui Power AutomationLtd from a dividend perspective.

If you're not too concerned about Shandong Kehui Power AutomationLtd's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For instance, we've identified 3 warning signs for Shandong Kehui Power AutomationLtd (1 is potentially serious) you should be aware of.

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

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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.