Interested In Kangji Medical Holdings' (HKG:9997) Upcoming CN¥0.24 Dividend? You Have Four Days Left

It looks like Kangji Medical Holdings Limited (HKG:9997) is about to go ex-dividend in the next four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Kangji Medical Holdings investors that purchase the stock on or after the 27th of May will not receive the dividend, which will be paid on the 16th of July.

The company's next dividend payment will be CN¥0.24 per share, on the back of last year when the company paid a total of CN¥0.24 to shareholders. Calculating the last year's worth of payments shows that Kangji Medical Holdings has a trailing yield of 3.4% on the current share price of HK$7.70. If you buy this business for its dividend, you should have an idea of whether Kangji Medical Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Our free stock report includes 1 warning sign investors should be aware of before investing in Kangji Medical Holdings. Read for free now.

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 Kangji Medical Holdings's payout ratio is modest, at just 49% of profit. A useful secondary check can be to evaluate whether Kangji Medical Holdings generated enough free cash flow to afford its dividend. It paid out an unsustainably high 326% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Kangji Medical Holdings is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Kangji Medical Holdings does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Kangji Medical Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Kangji Medical Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Kangji Medical Holdings

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Kangji Medical Holdings's earnings per share have been growing at 19% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kangji Medical Holdings has delivered 61% dividend growth per year on average over the past four years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Kangji Medical Holdings an attractive dividend stock, or better left on the shelf? We like that Kangji Medical Holdings has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall, it's hard to get excited about Kangji Medical Holdings from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 1 warning sign for Kangji Medical Holdings you should be aware of.

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.