Shanghai Industrial Holdings Limited (HKG:363) Is About To Go Ex-Dividend, And It Pays A 7.8% Yield

Shanghai Industrial Holdings Limited (HKG:363) is about to trade ex-dividend in the next 3 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. Therefore, if you purchase Shanghai Industrial Holdings' shares on or after the 30th of May, you won't be eligible to receive the dividend, when it is paid on the 14th of June.

The company's next dividend payment will be HK$0.52 per share, and in the last 12 months, the company paid a total of HK$0.94 per share. Based on the last year's worth of payments, Shanghai Industrial Holdings stock has a trailing yield of around 7.8% on the current share price of HK$12.12. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Shanghai Industrial Holdings

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. That's why it's good to see Shanghai Industrial Holdings paying out a modest 30% of its earnings. A useful secondary check can be to evaluate whether Shanghai Industrial Holdings generated enough free cash flow to afford its dividend. The company paid out 107% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Shanghai Industrial Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Shanghai Industrial Holdings's ability to maintain its dividend.

Click here to see how much of its profit Shanghai Industrial Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Shanghai Industrial Holdings's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shanghai Industrial Holdings has delivered an average of 0.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Is Shanghai Industrial Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have barely grown in this time, and although Shanghai Industrial Holdings is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Shanghai Industrial Holdings's dividend merits.

If you're not too concerned about Shanghai Industrial Holdings's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For instance, we've identified 2 warning signs for Shanghai Industrial Holdings (1 can't be ignored) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.