Shanxi Hi-speed Group Co., Ltd. (SZSE:000755) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Shanxi Hi-speed Group Co., Ltd. (SZSE:000755) stock is about to trade ex-dividend in 4 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. In other words, investors can purchase Shanxi Hi-speed Group's shares before the 24th of July in order to be eligible for the dividend, which will be paid on the 24th of July.

The company's next dividend payment will be CN¥0.045 per share. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Shanxi Hi-speed Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Shanxi Hi-speed Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shanxi Hi-speed Group has a low and conservative payout ratio of just 16% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 31% of its free cash flow as dividends, a comfortable payout level 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 how much of its profit Shanxi Hi-speed Group 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Shanxi Hi-speed Group's earnings have been skyrocketing, up 22% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

This is Shanxi Hi-speed Group's first year of paying a regular dividend, so it doesn't have much of a history yet to compare to.

Final Takeaway

Is Shanxi Hi-speed Group worth buying for its dividend? Shanxi Hi-speed Group has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Shanxi Hi-speed Group for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Shanxi Hi-speed Group (of which 1 is potentially serious!) you should know about.

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