Shandong Weigao Group Medical Polymer (HKG:1066) Could Be A Buy For Its Upcoming Dividend

It looks like Shandong Weigao Group Medical Polymer Company Limited (HKG:1066) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Shandong Weigao Group Medical Polymer's shares before the 9th of June in order to be eligible for the dividend, which will be paid on the 15th of July.

The company's next dividend payment will be CN¥0.065 per share, on the back of last year when the company paid a total of CN¥0.14 to shareholders. Looking at the last 12 months of distributions, Shandong Weigao Group Medical Polymer has a trailing yield of approximately 2.1% on its current stock price of HK$7.92. 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.

View our latest analysis for Shandong Weigao Group Medical Polymer

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shandong Weigao Group Medical Polymer paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether Shandong Weigao Group Medical Polymer generated enough free cash flow to afford its dividend. Fortunately, it paid out only 34% of its free cash flow in the past year.

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.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Shandong Weigao Group Medical Polymer's earnings per share have risen 16% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shandong Weigao Group Medical Polymer has delivered an average of 6.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Shandong Weigao Group Medical Polymer worth buying for its dividend? It's great that Shandong Weigao Group Medical Polymer is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Shandong Weigao Group Medical Polymer looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Shandong Weigao Group Medical Polymer and you should be aware of this before buying any shares.

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.