Laopu Gold (HKG:6181) Could Be A Buy For Its Upcoming Dividend

It looks like Laopu Gold Co., Ltd. (HKG:6181) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Laopu Gold's shares on or after the 20th of November, you won't be eligible to receive the dividend, when it is paid on the 15th of January.

The upcoming dividend for Laopu Gold is CN¥9.59 per share. If you buy this business for its dividend, you should have an idea of whether Laopu Gold's dividend is reliable and sustainable. As a result, readers should always check whether Laopu Gold has been able to grow its dividends, or if the dividend might be cut.

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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. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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. Laopu Gold paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Check out our latest analysis for Laopu Gold

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Laopu Gold's earnings have been skyrocketing, up 92% per annum for the past five years.

This is Laopu Gold's first year of paying a regular dividend, so it doesn't have much of a history yet to compare to.

Final Takeaway

Is Laopu Gold an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Laopu Gold paid out a much higher percentage of its free cash flow, which makes us uncomfortable. All things considered, we are not particularly enthused about Laopu Gold from a dividend perspective.

If you want to look further into Laopu Gold, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 1 warning sign for Laopu Gold 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.