It looks like Neway Valve (Suzhou) Co., Ltd. (SHSE:603699) is about to go ex-dividend in the next 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Neway Valve (Suzhou) investors that purchase the stock on or after the 10th of July will not receive the dividend, which will be paid on the 10th of July.

The company's next dividend payment will be CN¥0.52 per share, and in the last 12 months, the company paid a total of CN¥0.52 per share. Based on the last year's worth of payments, Neway Valve (Suzhou) has a trailing yield of 3.1% on the current stock price of CN¥16.67. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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 Neway Valve (Suzhou)'s payout ratio is modest, at just 48% 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 79% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Neway Valve (Suzhou) has grown its earnings rapidly, up 24% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Neway Valve (Suzhou) has increased its dividend at approximately 4.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Neway Valve (Suzhou) is keeping back more of its profits to grow the business.

The Bottom Line

Should investors buy Neway Valve (Suzhou) for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Neway Valve (Suzhou) paid out less than half its earnings and a bit over half its free cash flow. Neway Valve (Suzhou) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

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

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

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