Interested In Chengdu Expressway's (HKG:1785) Upcoming CN¥0.101 Dividend? You Have Four Days Left

Chengdu Expressway Co., Ltd. (HKG:1785) stock is about to trade ex-dividend in 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Chengdu Expressway's shares before the 19th of May in order to receive the dividend, which the company will pay on the 15th of July.

The company's next dividend payment will be CN¥0.101 per share. Last year, in total, the company distributed CN¥0.10 to shareholders. Based on the last year's worth of payments, Chengdu Expressway stock has a trailing yield of around 5.0% on the current share price of HK$2.21. If you buy this business for its dividend, you should have an idea of whether Chengdu Expressway's dividend is reliable and sustainable. So we need to investigate whether Chengdu Expressway can afford its dividend, and if the dividend could grow.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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 Chengdu Expressway's payout ratio is modest, at just 31% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Chengdu Expressway paid out more free cash flow than it generated - 169%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Chengdu Expressway paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Chengdu Expressway to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for Chengdu Expressway

Click here to see how much of its profit Chengdu Expressway paid out over the last 12 months.

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. That explains why we're not overly excited about Chengdu Expressway's flat earnings 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. Earnings have been growing somewhat, 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. Chengdu Expressway's dividend payments per share have declined at 4.1% per year on average over the past six years, which is uninspiring.

The Bottom Line

Has Chengdu Expressway got what it takes to maintain its dividend payments? Earnings per share have barely grown in this time, and although Chengdu Expressway is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. In summary, while it has some positive characteristics, we're not inclined to race out and buy Chengdu Expressway today.

However if you're still interested in Chengdu Expressway as a potential investment, you should definitely consider some of the risks involved with Chengdu Expressway. In terms of investment risks, we've identified 1 warning sign with Chengdu Expressway and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.