Don't Buy China Resources Boya Bio-pharmaceutical Group Co.,Ltd (SZSE:300294) For Its Next Dividend Without Doing These Checks

Simply Wall St · 10/21 22:26

It looks like China Resources Boya Bio-pharmaceutical Group Co.,Ltd (SZSE:300294) is about to go ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase China Resources Boya Bio-pharmaceutical GroupLtd's shares before the 25th of October in order to receive the dividend, which the company will pay on the 25th of October.

The company's next dividend payment will be CN¥0.16 per share, on the back of last year when the company paid a total of CN¥0.32 to shareholders. Last year's total dividend payments show that China Resources Boya Bio-pharmaceutical GroupLtd has a trailing yield of 1.0% on the current share price of CN¥33.02. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for China Resources Boya Bio-pharmaceutical GroupLtd

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. Last year, China Resources Boya Bio-pharmaceutical GroupLtd paid out 102% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Fortunately, it paid out only 49% of its free cash flow in the past year.

It's good to see that while China Resources Boya Bio-pharmaceutical GroupLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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SZSE:300294 Historic Dividend October 21st 2024

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by China Resources Boya Bio-pharmaceutical GroupLtd's 16% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, China Resources Boya Bio-pharmaceutical GroupLtd has increased its dividend at approximately 11% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. China Resources Boya Bio-pharmaceutical GroupLtd is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is China Resources Boya Bio-pharmaceutical GroupLtd worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 102% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in China Resources Boya Bio-pharmaceutical GroupLtd's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of China Resources Boya Bio-pharmaceutical GroupLtd.

With that in mind though, if the poor dividend characteristics of China Resources Boya Bio-pharmaceutical GroupLtd don't faze you, it's worth being mindful of the risks involved with this business. For example - China Resources Boya Bio-pharmaceutical GroupLtd has 3 warning signs we think you should be aware of.

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