Is Shanghai Ganglian E-Commerce Holdings Co., Ltd. (SZSE:300226) worth buying for its upcoming dividend?

Shanghai Ganglian E-Commerce Holdings Co., Ltd. (SZSE:300226) intends to trade ex-dividend in the next four days. Typically, the dividend payment date falls one business day before the record date, i.e. the day on which the company determines the shareholders entitled to receive the dividend. The ex-dividend date is important because to qualify for a dividend, each stock transaction must be settled before the ex-dividend date. This means that investors who purchase Shanghai Ganglian E-Commerce Holdings shares on or after May 29 will not receive the dividend, which will be paid on May 29.

The company’s next dividend payment will be CN¥0.08 per share, which is comparable to last year, when the company paid a total of CN¥0.08 to shareholders. Looking at the trailing 12 months’ payouts, Shanghai Ganglian E-Commerce Holdings has a trailing yield of approximately 0.4% on the current share price of CN¥19.49. If you buy this company for its dividend, you should have an idea of ​​whether Shanghai Ganglian E-Commerce Holdings’s dividend is reliable and sustainable. As a result, readers should always check whether Shanghai Ganglian E-Commerce Holdings has been able to grow its dividends, or if the dividend could be cut.

View our latest analysis for Shanghai Ganglian E-Commerce Holdings

Dividends are usually paid from the company’s profits. If a company pays more in dividends than it earned in profit, the dividend may be unsustainable. Shanghai Ganglian E-Commerce Holdings is paying out just 11% of its after-tax profit, which is comfortably low and leaves plenty of breathing room in the event of undesirable events. However, cash flow is usually more important than profit when assessing dividend sustainability, so we should always check whether the company generated enough cash to afford its dividend. It paid out 9.2% of its free cash flow as dividends last year, which is conservatively low.

It’s positive to see that Shanghai Ganglian E-Commerce Holdings’s dividend is covered by both profits and cash flow, since this generally means 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 and analyst estimates of its future dividends.

Are profits and dividends growing?

Stocks in companies that generate sustainable earnings growth often offer the best dividend opportunities, because it is easier to raise the dividend when earnings are rising. If earnings fall far enough, the company may be forced to cut its dividend. Fortunately for readers, Shanghai Ganglian E-Commerce Holdings’ earnings per share have been growing at a rate of 14% annually for the past five years. Earnings per share are growing rapidly, and more than half of the company’s profits are retained in the business; an attractive combination, which may suggest that the company is focusing on reinvestments to further increase profits. This will make it easier to fund future growth efforts and we think it’s an attractive combination, plus the dividend can always be increased later.

Another key way to measure a company’s dividend prospects is by measuring its historical dividend growth rate. Since our data began 10 years ago, Shanghai Ganglian E-Commerce Holdings has increased its dividend by approximately 15% per year on average. Both earnings per share and dividends have been growing rapidly recently, which is encouraging.

Conclusion

Should investors buy Shanghai Ganglian E-Commerce Holdings for its upcoming dividend? It’s great that Shanghai Ganglian E-Commerce Holdings is growing earnings per share while paying out a low percentage of both its earnings and cash flow. It’s disappointing that the dividend has been cut at least once in the past, but as things stand, the low payout ratio suggests a conservative approach to dividends, which we like. Overall, this analysis appears to be solid for Shanghai Ganglian E-Commerce Holdings, and we would definitely consider examining it further.

While it is tempting to invest in Shanghai Ganglian E-Commerce Holdings solely for the dividends, you should always keep in mind the risks involved. Every business has risks and we have noticed that 1 warning sign for Shanghai Ganglian E-Commerce Holdings you should know about it.

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

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This article by Simply Wall St is of a general nature. We comment based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative content. Simply Wall St has no position in any of the stocks mentioned.