Here's What We Like About Chaozhou Three-Circle (Group)Ltd's (SZSE:300408) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Chaozhou Three-Circle (Group) Co.,Ltd. (SZSE:300408) is about to go ex-dividend in just 3 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. Therefore, if you purchase Chaozhou Three-Circle (Group)Ltd's shares on or after the 9th of July, you won't be eligible to receive the dividend, when it is paid on the 9th of July.

The company's next dividend payment will be CN¥0.28 per share, on the back of last year when the company paid a total of CN¥0.28 to shareholders. Based on the last year's worth of payments, Chaozhou Three-Circle (Group)Ltd has a trailing yield of 1.0% on the current stock price of CN¥28.29. 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 Chaozhou Three-Circle (Group)Ltd

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. That's why it's good to see Chaozhou Three-Circle (Group)Ltd paying out a modest 32% of its earnings. A useful secondary check can be to evaluate whether Chaozhou Three-Circle (Group)Ltd generated enough free cash flow to afford its dividend. Over the last year it paid out 50% 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Chaozhou Three-Circle (Group)Ltd earnings per share are up 3.1% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Chaozhou Three-Circle (Group)Ltd has increased its dividend at approximately 9.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Chaozhou Three-Circle (Group)Ltd? Earnings per share growth has been modest, and it's interesting that Chaozhou Three-Circle (Group)Ltd is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it's hard to get excited about Chaozhou Three-Circle (Group)Ltd from a dividend perspective.

In light of that, while Chaozhou Three-Circle (Group)Ltd has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for Chaozhou Three-Circle (Group)Ltd that you should be aware of before investing in their 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