There's A Lot To Like About Changmao Biochemical Engineering Company Limited's (HKG:954) Upcoming CN¥0.055 Dividend
Readers hoping to buy Changmao Biochemical Engineering Company Limited (HKG:954) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 27th of May will not receive the dividend, which will be paid on the 31st of July.
Changmao Biochemical Engineering's upcoming dividend is HK$0.055 a share, following on from the last 12 months, when the company distributed a total of HK$0.055 per share to shareholders. Last year's total dividend payments show that Changmao Biochemical Engineering has a trailing yield of 9.1% on the current share price of HK$0.66. 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.
View our latest analysis for Changmao Biochemical Engineering
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Changmao Biochemical Engineering paid out a comfortable 50% of its profit last year. 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. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Changmao Biochemical Engineering, with earnings per share up 9.4% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Changmao Biochemical Engineering has delivered 2.8% dividend growth per year on average over the past nine years. 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.
Final Takeaway
From a dividend perspective, should investors buy or avoid Changmao Biochemical Engineering? Earnings per share have been growing moderately, and Changmao Biochemical Engineering is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Changmao Biochemical Engineering is halfway there. There's a lot to like about Changmao Biochemical Engineering, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for Changmao Biochemical Engineering you should know about.
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. Thank you for reading.
