Sinoma International Engineering Co.,Ltd (SHSE:600970) is about to trade ex-dividend in the next 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Sinoma International EngineeringLtd's shares on or after the 5th of June, you won't be eligible to receive the dividend, when it is paid on the 5th of June.

The company's next dividend payment will be CN¥0.40 per share. Last year, in total, the company distributed CN¥0.40 to shareholders. Calculating the last year's worth of payments shows that Sinoma International EngineeringLtd has a trailing yield of 3.1% on the current share price of CN¥12.72. If you buy this business for its dividend, you should have an idea of whether Sinoma International EngineeringLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Fortunately Sinoma International EngineeringLtd's payout ratio is modest, at just 35% of profit. 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. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Sinoma International EngineeringLtd'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Sinoma International EngineeringLtd earnings per share are up 7.3% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Sinoma International EngineeringLtd has lifted its dividend by approximately 37% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Sinoma International EngineeringLtd worth buying for its dividend? Earnings per share have been growing moderately, and Sinoma International EngineeringLtd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Sinoma International EngineeringLtd is halfway there. There's a lot to like about Sinoma International EngineeringLtd, and we would prioritise taking a closer look at it.

So while Sinoma International EngineeringLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Sinoma International EngineeringLtd has 1 warning sign we think you should be aware of.

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.