Sichuan Mingxing Electric Power Co., Ltd. (SHSE:600101) Will Pay A CN¥0.10 Dividend In Three Days

It looks like Sichuan Mingxing Electric Power Co., Ltd. (SHSE:600101) is about to go ex-dividend in the next three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Sichuan Mingxing Electric Power's shares on or after the 5th of July, you won't be eligible to receive the dividend, when it is paid on the 5th of July.

The company's next dividend payment will be CN¥0.10 per share. Last year, in total, the company distributed CN¥0.10 to shareholders. Last year's total dividend payments show that Sichuan Mingxing Electric Power has a trailing yield of 0.7% on the current share price of CN¥13.53. If you buy this business for its dividend, you should have an idea of whether Sichuan Mingxing Electric Power's dividend is reliable and sustainable. So we need to investigate whether Sichuan Mingxing Electric Power can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Sichuan Mingxing Electric Power

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. Sichuan Mingxing Electric Power has a low and conservative payout ratio of just 22% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 149% of its free cash flow as dividends, which is uncomfortably 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.

Sichuan Mingxing Electric Power does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Sichuan Mingxing Electric Power's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Sichuan Mingxing Electric Power to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Sichuan Mingxing Electric Power 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Sichuan Mingxing Electric Power earnings per share are up 7.6% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sichuan Mingxing Electric Power has delivered 10% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Sichuan Mingxing Electric Power worth buying for its dividend? Sichuan Mingxing Electric Power delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 149% of its cash flow over the last year, which is a mediocre outcome. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Sichuan Mingxing Electric Power as a potential investment, you should definitely consider some of the risks involved with Sichuan Mingxing Electric Power. For instance, we've identified 3 warning signs for Sichuan Mingxing Electric Power (1 is significant) you should be aware of.

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