Readers hoping to buy Shanghai Chicmax Cosmetic Co., Ltd. (HKG:2145) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Shanghai Chicmax Cosmetic investors that purchase the stock on or after the 8th of May will not receive the dividend, which will be paid on the 30th of May.
The company's upcoming dividend is CN¥0.75 a share, following on from the last 12 months, when the company distributed a total of CN¥1.50 per share to shareholders. Based on the last year's worth of payments, Shanghai Chicmax Cosmetic has a trailing yield of 2.3% on the current stock price of HK$70.00. 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.
Our free stock report includes 1 warning sign investors should be aware of before investing in Shanghai Chicmax Cosmetic. Read for free now.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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 171% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Shanghai Chicmax Cosmetic's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Shanghai Chicmax Cosmetic's ability to maintain its dividend.
Check out our latest analysis for Shanghai Chicmax Cosmetic
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. That's why it's comforting to see Shanghai Chicmax Cosmetic's earnings have been skyrocketing, up 62% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last two years, Shanghai Chicmax Cosmetic has lifted its dividend by approximately 145% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy Shanghai Chicmax Cosmetic for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Shanghai Chicmax Cosmetic paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Shanghai Chicmax Cosmetic's dividend merits.
If you're not too concerned about Shanghai Chicmax Cosmetic's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 1 warning sign for Shanghai Chicmax Cosmetic you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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.