Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Mega-info Media Co.,Ltd. (SZSE:301102) is about to go ex-dividend in just 3 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 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. This means that investors who purchase Mega-info MediaLtd's shares on or after the 19th of July will not receive the dividend, which will be paid on the 19th of July.

The company's next dividend payment will be CN¥0.14 per share, on the back of last year when the company paid a total of CN¥0.14 to shareholders. Based on the last year's worth of payments, Mega-info MediaLtd stock has a trailing yield of around 1.2% on the current share price of CN¥11.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Mega-info MediaLtd has been able to grow its dividends, or if the dividend might be cut.

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 Mega-info MediaLtd's payout ratio is modest, at just 37% of profit. 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. Luckily it paid out just 9.4% of its free 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Mega-info MediaLtd's earnings per share have dropped 12% 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. Mega-info MediaLtd's dividend payments per share have declined at 9.9% per year on average over the past two years, which is uninspiring. 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.

The Bottom Line

Is Mega-info MediaLtd an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Mega-info MediaLtd from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for Mega-info MediaLtd you should know about.

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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