It Might Not Be A Great Idea To Buy Guangdong Kanghua Healthcare Group Co., Ltd. (HKG:3689) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Guangdong Kanghua Healthcare Group Co., Ltd. (HKG:3689) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Guangdong Kanghua Healthcare Group's shares on or after the 23rd of June, you won't be eligible to receive the dividend, when it is paid on the 25th of July.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.15 to shareholders. Calculating the last year's worth of payments shows that Guangdong Kanghua Healthcare Group has a trailing yield of 8.2% on the current share price of HK$2.00. 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.

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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. An unusually high payout ratio of 327% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

See our latest analysis for Guangdong Kanghua Healthcare Group

Click here to see how much of its profit Guangdong Kanghua Healthcare Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Guangdong Kanghua Healthcare Group's earnings per share have fallen at approximately 27% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Guangdong Kanghua Healthcare Group has delivered 0.9% dividend growth per year on average over the past eight years.

To Sum It Up

From a dividend perspective, should investors buy or avoid Guangdong Kanghua Healthcare Group? Not only are earnings per share shrinking, but Guangdong Kanghua Healthcare Group is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Guangdong Kanghua Healthcare Group doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in Guangdong Kanghua Healthcare Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Guangdong Kanghua Healthcare Group has 3 warning signs we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.