Shanghai National Center of Testing and Inspection for Electric Cable and Wire Co., Ltd. (SZSE:301289) stock is about to trade ex-dividend in 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Shanghai National Center of Testing and Inspection for Electric Cable and Wire's shares on or after the 26th of June, you won't be eligible to receive the dividend, when it is paid on the 26th of June.

The company's next dividend payment will be CN¥0.40 per share, and in the last 12 months, the company paid a total of CN¥0.40 per share. Last year's total dividend payments show that Shanghai National Center of Testing and Inspection for Electric Cable and Wire has a trailing yield of 1.0% on the current share price of CN¥40.06. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are 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. Fortunately Shanghai National Center of Testing and Inspection for Electric Cable and Wire's payout ratio is modest, at just 40% of profit. 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. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Shanghai National Center of Testing and Inspection for Electric Cable and Wire paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Shanghai National Center of Testing and Inspection for Electric Cable and Wire's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Unfortunately Shanghai National Center of Testing and Inspection for Electric Cable and Wire has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has Shanghai National Center of Testing and Inspection for Electric Cable and Wire got what it takes to maintain its dividend payments? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Shanghai National Center of Testing and Inspection for Electric Cable and Wire is halfway there. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Shanghai National Center of Testing and Inspection for Electric Cable and Wire is facing. In terms of investment risks, we've identified 1 warning sign with Shanghai National Center of Testing and Inspection for Electric Cable and Wire and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com