Guangxi Wuzhou Communications (SHSE:600368) Could Be A Buy For Its Upcoming Dividend

Guangxi Wuzhou Communications Co., Ltd. (SHSE:600368) stock is about to trade ex-dividend in two days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Guangxi Wuzhou Communications' 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 upcoming dividend is CN¥0.107 a share, following on from the last 12 months, when the company distributed a total of CN¥0.11 per share to shareholders. Based on the last year's worth of payments, Guangxi Wuzhou Communications has a trailing yield of 2.2% on the current stock price of CN¥4.80. If you buy this business for its dividend, you should have an idea of whether Guangxi Wuzhou Communications's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Guangxi Wuzhou Communications

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. Guangxi Wuzhou Communications is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Guangxi Wuzhou Communications's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Guangxi Wuzhou Communications paid out over the last 12 months.

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. With that in mind, we're encouraged by the steady growth at Guangxi Wuzhou Communications, with earnings per share up 9.8% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Guangxi Wuzhou Communications has lifted its dividend by approximately 22% 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.

The Bottom Line

Is Guangxi Wuzhou Communications worth buying for its dividend? Earnings per share growth has been growing somewhat, and Guangxi Wuzhou Communications is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Guangxi Wuzhou Communications is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Guangxi Wuzhou Communications, and we would prioritise taking a closer look at it.

While it's tempting to invest in Guangxi Wuzhou Communications for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Guangxi Wuzhou Communications (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

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