China Zhenhua (Group) Science & Technology Co., Ltd (SZSE:000733) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

China Zhenhua (Group) Science & Technology Co., Ltd (SZSE:000733) stock is about to trade ex-dividend in three 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. Meaning, you will need to purchase China Zhenhua (Group) Science & Technology's shares before the 28th of June to receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be CN¥1.114 per share. Last year, in total, the company distributed CN¥1.11 to shareholders. Based on the last year's worth of payments, China Zhenhua (Group) Science & Technology stock has a trailing yield of around 2.5% on the current share price of CN¥45.12. 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 investigate whether China Zhenhua (Group) Science & Technology can afford its dividend, and if the dividend could grow.

Check out our latest analysis for China Zhenhua (Group) Science & Technology

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately China Zhenhua (Group) Science & Technology's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether China Zhenhua (Group) Science & Technology generated enough free cash flow to afford its dividend. Over the last year it paid out 75% of its free cash flow as dividends, within the usual range 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see China Zhenhua (Group) Science & Technology's earnings have been skyrocketing, up 42% per annum for the past five years.

We'd also point out that China Zhenhua (Group) Science & Technology issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. China Zhenhua (Group) Science & Technology has delivered 39% dividend growth per year on average over the past 10 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 China Zhenhua (Group) Science & Technology worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, China Zhenhua (Group) Science & Technology paid out less than half its earnings and a bit over half its free cash flow. China Zhenhua (Group) Science & Technology looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in China Zhenhua (Group) Science & Technology for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for China Zhenhua (Group) Science & Technology and you should be aware of them before buying any shares.

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.

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