Readers hoping to buy Zhangzhou Pientzehuang Pharmaceutical., Ltd (SHSE:600436) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Zhangzhou Pientzehuang Pharmaceutical's shares on or after the 7th of June will not receive the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥2.32 per share. Last year, in total, the company distributed CN¥2.32 to shareholders. Based on the last year's worth of payments, Zhangzhou Pientzehuang Pharmaceutical has a trailing yield of 1.0% on the current stock price of CN¥227.00. If you buy this business for its dividend, you should have an idea of whether Zhangzhou Pientzehuang Pharmaceutical's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Zhangzhou Pientzehuang Pharmaceutical paid out a comfortable 47% of its profit last year. 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. Fortunately, it paid out only 40% of its free cash flow in the past year.

It's positive to see that Zhangzhou Pientzehuang Pharmaceutical'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. It's encouraging to see Zhangzhou Pientzehuang Pharmaceutical has grown its earnings rapidly, up 21% a year for the past five years. Zhangzhou Pientzehuang Pharmaceutical is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhangzhou Pientzehuang Pharmaceutical has delivered an average of 23% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Zhangzhou Pientzehuang Pharmaceutical worth buying for its dividend? We love that Zhangzhou Pientzehuang Pharmaceutical is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

Wondering what the future holds for Zhangzhou Pientzehuang Pharmaceutical? See what the 10 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.