Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dawnrays Pharmaceutical (Holdings) Limited (HKG:2348) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 24th of September in order to receive the dividend, which the company will pay on the 10th of October.

Dawnrays Pharmaceutical (Holdings)'s next dividend payment will be HK$0.01 per share, on the back of last year when the company paid a total of HK$0.07 to shareholders. Calculating the last year's worth of payments shows that Dawnrays Pharmaceutical (Holdings) has a trailing yield of 4.9% on the current share price of HK$1.53. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Dawnrays Pharmaceutical (Holdings) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Dawnrays Pharmaceutical (Holdings)

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. Dawnrays Pharmaceutical (Holdings) paid out a comfortable 37% of its profit last year. A useful secondary check can be to evaluate whether Dawnrays Pharmaceutical (Holdings) generated enough free cash flow to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past year.

It's positive to see that Dawnrays Pharmaceutical (Holdings)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Dawnrays Pharmaceutical (Holdings) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Dawnrays Pharmaceutical (Holdings)'s earnings per share have risen 14% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Dawnrays Pharmaceutical (Holdings) has lifted its dividend by approximately 10% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Has Dawnrays Pharmaceutical (Holdings) got what it takes to maintain its dividend payments? Dawnrays Pharmaceutical (Holdings) has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. Dawnrays Pharmaceutical (Holdings) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on Dawnrays Pharmaceutical (Holdings)'s financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.