Readers hoping to buy Beijing Tong Ren Tang Chinese Medicine Company Limited (HKG:3613) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Meaning, you will need to purchase Beijing Tong Ren Tang Chinese Medicine's shares before the 12th of June to receive the dividend, which will be paid on the 24th of June.
The company's next dividend payment will be HK$0.33 per share, and in the last 12 months, the company paid a total of HK$0.33 per share. Looking at the last 12 months of distributions, Beijing Tong Ren Tang Chinese Medicine has a trailing yield of approximately 3.3% on its current stock price of HK$9.90. If you buy this business for its dividend, you should have an idea of whether Beijing Tong Ren Tang Chinese Medicine's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Beijing Tong Ren Tang Chinese Medicine
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Beijing Tong Ren Tang Chinese Medicine is paying out an acceptable 51% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Beijing Tong Ren Tang Chinese Medicine'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 the company's payout ratio, plus analyst estimates of its future dividends.
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. It's not encouraging to see that Beijing Tong Ren Tang Chinese Medicine's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Beijing Tong Ren Tang Chinese Medicine has increased its dividend at approximately 7.0% a year on average.
To Sum It Up
Is Beijing Tong Ren Tang Chinese Medicine worth buying for its dividend? While earnings per share are flat, at least Beijing Tong Ren Tang Chinese Medicine has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Beijing Tong Ren Tang Chinese Medicine.
Although, if you're still interested in Beijing Tong Ren Tang Chinese Medicine and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Beijing Tong Ren Tang Chinese Medicine and you should be aware of this before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.