Beijing Tong Ren Tang Chinese Medicine Company Limited (HKG:3613) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Beijing Tong Ren Tang Chinese Medicine's shares before the 1st of June to receive the dividend, which will be paid on the 30th of June.
The company's upcoming dividend is HK$0.24 a share, following on from the last 12 months, when the company distributed a total of HK$0.24 per share to shareholders. Based on the last year's worth of payments, Beijing Tong Ren Tang Chinese Medicine has a trailing yield of 1.9% on the current stock price of HK$12.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Beijing Tong Ren Tang Chinese Medicine can afford its dividend, and if the dividend could grow.
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. Fortunately Beijing Tong Ren Tang Chinese Medicine's payout ratio is modest, at just 37% of profit. 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. Beijing Tong Ren Tang Chinese Medicine paid out more free cash flow than it generated - 187%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Beijing Tong Ren Tang Chinese Medicine 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 Beijing Tong Ren Tang Chinese Medicine'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. Were this to happen repeatedly, this would be a risk to Beijing Tong Ren Tang Chinese Medicine's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Beijing Tong Ren Tang Chinese Medicine, with earnings per share up 8.9% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Beijing Tong Ren Tang Chinese Medicine has lifted its dividend by approximately 4.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Beijing Tong Ren Tang Chinese Medicine an attractive dividend stock, or better left on the shelf? Beijing Tong Ren Tang Chinese Medicine delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 187% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about Beijing Tong Ren Tang Chinese Medicine from a dividend perspective.
However if you're still interested in Beijing Tong Ren Tang Chinese Medicine as a potential investment, you should definitely consider some of the risks involved with Beijing Tong Ren Tang Chinese Medicine. To help with this, we've discovered 2 warning signs for Beijing Tong Ren Tang Chinese Medicine (1 is concerning!) that you ought to be aware of before buying the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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