Yindu Kitchen Equipment Co., Ltd (SHSE:603277) stock is about to trade ex-dividend in 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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, Yindu Kitchen Equipment investors that purchase the stock on or after the 24th of October will not receive the dividend, which will be paid on the 24th of October.
The company's next dividend payment will be CN¥0.50 per share, and in the last 12 months, the company paid a total of CN¥1.00 per share. Last year's total dividend payments show that Yindu Kitchen Equipment has a trailing yield of 4.0% on the current share price of CN¥25.24. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Yindu Kitchen Equipment
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. Yindu Kitchen Equipment paid out 106% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Cash is slightly more important than profit from a dividend perspective, but given Yindu Kitchen Equipment's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. For this reason, we're glad to see Yindu Kitchen Equipment's earnings per share have risen 17% per annum over the last five years. It's not encouraging to see Yindu Kitchen Equipment paying out basically all of its earnings and cashflow to shareholders. We're glad that earnings are growing rapidly, but we're wary of the company stretching itself financially.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Yindu Kitchen Equipment has delivered 37% dividend growth per year on average over the past six years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Has Yindu Kitchen Equipment got what it takes to maintain its dividend payments? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Yindu Kitchen Equipment.
Although, if you're still interested in Yindu Kitchen Equipment and want to know more, you'll find it very useful to know what risks this stock faces. For example - Yindu Kitchen Equipment has 1 warning sign we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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.