Here's What We Like About Shanghai Shentong MetroLtd's (SHSE:600834) Upcoming Dividend

It looks like Shanghai Shentong Metro Co.,Ltd. (SHSE:600834) is about to go ex-dividend in the next 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Shanghai Shentong MetroLtd's shares before the 17th of October in order to receive the dividend, which the company will pay on the 17th of October.

The company's upcoming dividend is CN¥0.019 a share, following on from the last 12 months, when the company distributed a total of CN¥0.052 per share to shareholders. Calculating the last year's worth of payments shows that Shanghai Shentong MetroLtd has a trailing yield of 0.5% on the current share price of CN¥7.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Shanghai Shentong MetroLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shanghai Shentong MetroLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shanghai Shentong MetroLtd paid out 54% of its earnings to investors last year, a normal payout level for most businesses. 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. The good news is it paid out just 9.8% of its free cash flow in the last year.

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 Shanghai Shentong MetroLtd paid out over the last 12 months.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Shanghai Shentong MetroLtd's earnings per share have risen 13% per annum over the last five years. Shanghai Shentong MetroLtd is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shanghai Shentong MetroLtd has seen its dividend decline 7.2% per annum on average over the past 10 years, which is not great to see. Shanghai Shentong MetroLtd is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is Shanghai Shentong MetroLtd an attractive dividend stock, or better left on the shelf? Shanghai Shentong MetroLtd's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

Keen to explore more data on Shanghai Shentong MetroLtd's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.