Read This Before Considering Shandong Weigao Group Medical Polymer Company Limited (HKG:1066) For Its Upcoming CN¥0.0969 Dividend

It looks like Shandong Weigao Group Medical Polymer Company Limited (HKG:1066) is about to go ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Shandong Weigao Group Medical Polymer's shares on or after the 21st of October will not receive the dividend, which will be paid on the 21st of November.

The company's next dividend payment will be CN¥0.0969 per share. Last year, in total, the company distributed CN¥0.22 to shareholders. Based on the last year's worth of payments, Shandong Weigao Group Medical Polymer stock has a trailing yield of around 4.1% on the current share price of HK$5.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shandong Weigao Group Medical Polymer 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. Shandong Weigao Group Medical Polymer paid out more than half (51%) of its earnings last year, which is a regular payout ratio for 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 distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Shandong Weigao Group Medical Polymer'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.

See our latest analysis for Shandong Weigao Group Medical Polymer

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Shandong Weigao Group Medical Polymer's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Shandong Weigao Group Medical Polymer has lifted its dividend by approximately 13% a year on average.

The Bottom Line

Is Shandong Weigao Group Medical Polymer an attractive dividend stock, or better left on the shelf? Earnings per share have been flat and Shandong Weigao Group Medical Polymer's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Shandong Weigao Group Medical Polymer has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Shandong Weigao Group Medical Polymer that we recommend you consider before investing in the business.

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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.