It Might Not Be A Great Idea To Buy CSSC Offshore & Marine Engineering (Group) Company Limited (HKG:317) For Its Next Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that CSSC Offshore & Marine Engineering (Group) Company Limited (HKG:317) is about to go ex-dividend in just 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase CSSC Offshore & Marine Engineering (Group)'s shares on or after the 29th of May will not receive the dividend, which will be paid on the 16th of July.

The company's upcoming dividend is CN¥0.135 a share, following on from the last 12 months, when the company distributed a total of CN¥0.27 per share to shareholders. Looking at the last 12 months of distributions, CSSC Offshore & Marine Engineering (Group) has a trailing yield of approximately 2.1% on its current stock price of HK$15.12. If you buy this business for its dividend, you should have an idea of whether CSSC Offshore & Marine Engineering (Group)'s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. CSSC Offshore & Marine Engineering (Group) has a low and conservative payout ratio of just 25% of its income after tax. 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. It paid out 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While CSSC Offshore & Marine Engineering (Group)'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 CSSC Offshore & Marine Engineering (Group)'s ability to maintain its dividend.

See our latest analysis for CSSC Offshore & Marine Engineering (Group)

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by CSSC Offshore & Marine Engineering (Group)'s 20% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, CSSC Offshore & Marine Engineering (Group) has lifted its dividend by approximately 25% a year on average.

The Bottom Line

Is CSSC Offshore & Marine Engineering (Group) an attractive dividend stock, or better left on the shelf? CSSC Offshore & Marine Engineering (Group)'s earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of CSSC Offshore & Marine Engineering (Group).

Wondering what the future holds for CSSC Offshore & Marine Engineering (Group)? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.