Ferrotec (An Hui) Technology Development Co.,LTD (SZSE:301297) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Ferrotec (An Hui) Technology DevelopmentLTD investors that purchase the stock on or after the 11th of July will not receive the dividend, which will be paid on the 11th of July.

The company's next dividend payment will be CN¥0.08 per share, and in the last 12 months, the company paid a total of CN¥0.08 per share. Based on the last year's worth of payments, Ferrotec (An Hui) Technology DevelopmentLTD stock has a trailing yield of around 0.4% on the current share price of CN¥19.47. 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.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Ferrotec (An Hui) Technology DevelopmentLTD paying out a modest 28% of its earnings. 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 34% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Ferrotec (An Hui) Technology DevelopmentLTD'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 Ferrotec (An Hui) Technology DevelopmentLTD paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Ferrotec (An Hui) Technology DevelopmentLTD's earnings are down 4.9% a year over the past five years.

Given that Ferrotec (An Hui) Technology DevelopmentLTD has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

From a dividend perspective, should investors buy or avoid Ferrotec (An Hui) Technology DevelopmentLTD? Ferrotec (An Hui) Technology DevelopmentLTD has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ferrotec (An Hui) Technology DevelopmentLTD today.

On that note, you'll want to research what risks Ferrotec (An Hui) Technology DevelopmentLTD is facing. Our analysis shows 1 warning sign for Ferrotec (An Hui) Technology DevelopmentLTD and you should be aware of this before buying any 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.

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