Is It Worth Considering Top Resource Energy Co., Ltd. (SZSE:300332) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Top Resource Energy Co., Ltd. (SZSE:300332) is about to go ex-dividend in just three 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. 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. Accordingly, Top Resource Energy investors that purchase the stock on or after the 1st of July will not receive the dividend, which will be paid on the 1st of July.

The company's next dividend payment will be CN¥0.055999 per share. Last year, in total, the company distributed CN¥0.056 to shareholders. Looking at the last 12 months of distributions, Top Resource Energy has a trailing yield of approximately 1.1% on its current stock price of CN¥5.22. If you buy this business for its dividend, you should have an idea of whether Top Resource Energy's dividend is reliable and sustainable. So we need to investigate whether Top Resource Energy can afford its dividend, and if the dividend could grow.

See our latest analysis for Top Resource Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Top Resource Energy's payout ratio is modest, at just 45% of profit. 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. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range 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 the company's payout ratio, plus analyst estimates of its future dividends.

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 Top Resource Energy earnings per share are up 3.9% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Top Resource Energy has increased its dividend at approximately 6.4% a year on average. 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Top Resource Energy? Earnings per share growth has been modest, and it's interesting that Top Resource Energy is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Top Resource Energy's dividend merits.

In light of that, while Top Resource Energy has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Top Resource Energy and understanding them 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