It Might Not Be A Great Idea To Buy Beijing Chunlizhengda Medical Instruments Co., Ltd. (HKG:1858) For Its Next Dividend

Beijing Chunlizhengda Medical Instruments Co., Ltd. (HKG:1858) stock is about to trade ex-dividend in four days. The ex-dividend date is commonly two business days 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Beijing Chunlizhengda Medical Instruments' shares on or after the 24th of November will not receive the dividend, which will be paid on the 19th of January.

The company's next dividend payment will be CN¥0.21 per share. Last year, in total, the company distributed CN¥0.42 to shareholders. Last year's total dividend payments show that Beijing Chunlizhengda Medical Instruments has a trailing yield of 2.6% on the current share price of HK$17.74. If you buy this business for its dividend, you should have an idea of whether Beijing Chunlizhengda Medical Instruments's dividend is reliable and sustainable. So we need to investigate whether Beijing Chunlizhengda Medical Instruments can afford its dividend, and if the dividend could grow.

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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. Fortunately Beijing Chunlizhengda Medical Instruments's payout ratio is modest, at just 38% of profit. A useful secondary check can be to evaluate whether Beijing Chunlizhengda Medical Instruments generated enough free cash flow to afford its dividend. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

Check out our latest analysis for Beijing Chunlizhengda Medical Instruments

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 Beijing Chunlizhengda Medical Instruments's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Beijing Chunlizhengda Medical Instruments has increased its dividend at approximately 37% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Beijing Chunlizhengda Medical Instruments? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 1 warning sign for Beijing Chunlizhengda Medical Instruments that you should be aware of before investing in their shares.

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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.