Motic (Xiamen) Electric Group Co.,Ltd (SZSE:300341) is about to trade ex-dividend in the next two days. 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. Meaning, you will need to purchase Motic (Xiamen) Electric GroupLtd's shares before the 28th of June to receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be CN¥0.07 per share, on the back of last year when the company paid a total of CN¥0.07 to shareholders. Calculating the last year's worth of payments shows that Motic (Xiamen) Electric GroupLtd has a trailing yield of 0.8% on the current share price of CN¥8.26. 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 investigate whether Motic (Xiamen) Electric GroupLtd can afford its dividend, and if the dividend could grow.

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. Motic (Xiamen) Electric GroupLtd is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.

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 Motic (Xiamen) Electric GroupLtd 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. 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 explains why we're not overly excited about Motic (Xiamen) Electric GroupLtd's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Motic (Xiamen) Electric GroupLtd is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Motic (Xiamen) Electric GroupLtd has lifted its dividend by approximately 11% a year on average.

The Bottom Line

Should investors buy Motic (Xiamen) Electric GroupLtd for the upcoming dividend? 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Motic (Xiamen) Electric GroupLtd is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Motic (Xiamen) Electric GroupLtd for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Motic (Xiamen) Electric GroupLtd that you should be aware of before investing in their shares.

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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