LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) Will Pay A CN¥0.62 Dividend In Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. This means that investors who purchase LEPU ScienTech Medical Technology (Shanghai)'s shares on or after the 26th of May will not receive the dividend, which will be paid on the 31st of July.

The company's next dividend payment will be CN¥0.62 per share, and in the last 12 months, the company paid a total of CN¥0.62 per share. Calculating the last year's worth of payments shows that LEPU ScienTech Medical Technology (Shanghai) has a trailing yield of 3.3% on the current share price of HK$20.15. 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.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 88% 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 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. Over the past year it paid out 142% 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.

LEPU ScienTech Medical Technology (Shanghai) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While LEPU ScienTech Medical Technology (Shanghai)'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 LEPU ScienTech Medical Technology (Shanghai)'s ability to maintain its dividend.

See our latest analysis for LEPU ScienTech Medical Technology (Shanghai)

Click here to see how much of its profit LEPU ScienTech Medical Technology (Shanghai) paid out over the last 12 months.

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 LEPU ScienTech Medical Technology (Shanghai)'s earnings have been skyrocketing, up 30% 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.

Unfortunately LEPU ScienTech Medical Technology (Shanghai) has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has LEPU ScienTech Medical Technology (Shanghai) got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 142% of its cashflow, which is uncomfortably high. In summary, it's hard to get excited about LEPU ScienTech Medical Technology (Shanghai) from a dividend perspective.

So if you want to do more digging on LEPU ScienTech Medical Technology (Shanghai), you'll find it worthwhile knowing the risks that this stock faces. To that end, you should learn about the 2 warning signs we've spotted with LEPU ScienTech Medical Technology (Shanghai) (including 1 which shouldn't be ignored).

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