Is It Worth Considering Sichuan Baicha Baidao Industrial Co., Ltd. (HKG:2555) For Its Upcoming Dividend?

Sichuan Baicha Baidao Industrial Co., Ltd. (HKG:2555) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. Accordingly, Sichuan Baicha Baidao Industrial investors that purchase the stock on or after the 26th of May will not receive the dividend, which will be paid on the 11th of July.

The upcoming dividend for Sichuan Baicha Baidao Industrial will put a total of CN¥0.20 per share in shareholders' pockets. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sichuan Baicha Baidao Industrial is paying out an acceptable 59% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 6.2% of its free cash flow as dividends last year, which is conservatively low.

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.

See our latest analysis for Sichuan Baicha Baidao Industrial

Click here to see how much of its profit Sichuan Baicha Baidao Industrial paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sichuan Baicha Baidao Industrial's earnings per share have fallen at approximately 16% a year over the previous three years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Sichuan Baicha Baidao Industrial also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

This is Sichuan Baicha Baidao Industrial's first year of paying a regular dividend, so it doesn't have much of a history yet to compare to.

Final Takeaway

Should investors buy Sichuan Baicha Baidao Industrial for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. In summary, it's hard to get excited about Sichuan Baicha Baidao Industrial from a dividend perspective.

If you want to look further into Sichuan Baicha Baidao Industrial, it's worth knowing the risks this business faces. For example - Sichuan Baicha Baidao Industrial has 2 warning signs we think you should be aware of.

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.