It looks like Zhejiang Yilida Ventilator Co.,Ltd. (SZSE:002686) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Zhejiang Yilida VentilatorLtd investors that purchase the stock on or after the 28th of June will not receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be CN¥0.02 per share. Last year, in total, the company distributed CN¥0.02 to shareholders. Calculating the last year's worth of payments shows that Zhejiang Yilida VentilatorLtd has a trailing yield of 0.5% on the current share price of CN¥4.22. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Zhejiang Yilida VentilatorLtd's payout ratio is modest, at just 45% of profit. 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 more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Zhejiang Yilida VentilatorLtd'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 how much of its profit Zhejiang Yilida VentilatorLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Zhejiang Yilida VentilatorLtd's earnings per share have dropped 5.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Zhejiang Yilida VentilatorLtd has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

From a dividend perspective, should investors buy or avoid Zhejiang Yilida VentilatorLtd? Earnings per share have fallen significantly, although at least Zhejiang Yilida VentilatorLtd paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall, it's hard to get excited about Zhejiang Yilida VentilatorLtd from a dividend perspective.

Curious about whether Zhejiang Yilida VentilatorLtd has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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.

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