Don't Race Out To Buy Hangzhou Shenhao Technology Co.,LTD. (SZSE:300853) Just Because It's Going Ex-Dividend

Readers hoping to buy Hangzhou Shenhao Technology Co.,LTD. (SZSE:300853) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Hangzhou Shenhao TechnologyLTD's shares on or after the 23rd of May, you won't be eligible to receive the dividend, when it is paid on the 23rd of May.

The company's next dividend payment will be CN¥0.20 per share, and in the last 12 months, the company paid a total of CN¥0.20 per share. Calculating the last year's worth of payments shows that Hangzhou Shenhao TechnologyLTD has a trailing yield of 1.2% on the current share price of CN¥16.42. If you buy this business for its dividend, you should have an idea of whether Hangzhou Shenhao TechnologyLTD's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Hangzhou Shenhao TechnologyLTD

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hangzhou Shenhao TechnologyLTD lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Hangzhou Shenhao TechnologyLTD 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. Hangzhou Shenhao TechnologyLTD paid out more free cash flow than it generated - 169%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see how much of its profit Hangzhou Shenhao TechnologyLTD 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hangzhou Shenhao TechnologyLTD 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. Hangzhou Shenhao TechnologyLTD has seen its dividend decline 12% per annum on average over the past four years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Remember, you can always get a snapshot of Hangzhou Shenhao TechnologyLTD's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is Hangzhou Shenhao TechnologyLTD an attractive dividend stock, or better left on the shelf? 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." It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Hangzhou Shenhao TechnologyLTD as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Hangzhou Shenhao TechnologyLTD that we recommend you consider before investing in the business.

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.