Should You Buy Li Ning Company Limited (HKG:2331) For Its Upcoming Dividend?

Readers hoping to buy Li Ning Company Limited (HKG:2331) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Li Ning's shares before the 17th of June in order to be eligible for the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be CN¥0.1854 per share, on the back of last year when the company paid a total of CN¥0.55 to shareholders. Based on the last year's worth of payments, Li Ning has a trailing yield of 3.1% on the current stock price of HK$19.14. If you buy this business for its dividend, you should have an idea of whether Li Ning's dividend is reliable and sustainable. So we need to investigate whether Li Ning can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Li Ning

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. That's why it's good to see Li Ning paying out a modest 44% of its earnings. 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 paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Li Ning's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Li Ning has grown its earnings rapidly, up 34% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, five years ago, Li Ning has lifted its dividend by approximately 44% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Li Ning worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Li Ning paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Li Ning, and we would prioritise taking a closer look at it.

Ever wonder what the future holds for Li Ning? See what the 36 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.