Readers hoping to buy Anhui Anli Material Technology Co., Ltd. (SZSE:300218) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Anhui Anli Material Technology investors that purchase the stock on or after the 28th of May will not receive the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be CN¥0.13 per share, and in the last 12 months, the company paid a total of CN¥0.13 per share. Calculating the last year's worth of payments shows that Anhui Anli Material Technology has a trailing yield of 0.8% on the current share price of CN¥15.95. If you buy this business for its dividend, you should have an idea of whether Anhui Anli Material Technology's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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. Anhui Anli Material Technology has a low and conservative payout ratio of just 21% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 23% of its free cash flow in the last year.

It's positive to see that Anhui Anli Material Technology'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?

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Anhui Anli Material Technology's earnings have been skyrocketing, up 41% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Anhui Anli Material Technology looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Anhui Anli Material Technology has delivered 5.0% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Anhui Anli Material Technology is keeping back more of its profits to grow the business.

To Sum It Up

Has Anhui Anli Material Technology got what it takes to maintain its dividend payments? Anhui Anli Material Technology has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Anhui Anli Material Technology looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Anhui Anli Material Technology is facing. For example, we've found 1 warning sign for Anhui Anli Material Technology that we recommend you consider before investing in the business.

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.