Should You Buy Zhongtai Futures Company Limited (HKG:1461) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Zhongtai Futures Company Limited (HKG:1461) is about to trade ex-dividend in the next four 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Zhongtai Futures' shares before the 2nd of July in order to receive the dividend, which the company will pay on the 8th of August.

The company's next dividend payment will be CN¥0.014 per share. Last year, in total, the company distributed CN¥0.014 to shareholders. Based on the last year's worth of payments, Zhongtai Futures stock has a trailing yield of around 3.0% on the current share price of HK$0.50. 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.

Check out our latest analysis for Zhongtai Futures

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. Zhongtai Futures paid out just 10% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit Zhongtai Futures paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Zhongtai Futures, with earnings per share up 2.6% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Zhongtai Futures's dividend payments per share have declined at 13% per year on average over the past eight years, which is uninspiring. Zhongtai Futures is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid Zhongtai Futures? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Zhongtai Futures looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

While it's tempting to invest in Zhongtai Futures for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Zhongtai Futures 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com