It looks like Zhejiang Shuangyuan Technology Co., Ltd. (SHSE:688623) is about to go ex-dividend in the next three 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. 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. This means that investors who purchase Zhejiang Shuangyuan Technology's shares on or after the 10th of October will not receive the dividend, which will be paid on the 10th of October.

The company's next dividend payment will be CN¥0.262 per share, on the back of last year when the company paid a total of CN¥0.52 to shareholders. Based on the last year's worth of payments, Zhejiang Shuangyuan Technology has a trailing yield of 0.9% on the current stock price of CN¥57.34. If you buy this business for its dividend, you should have an idea of whether Zhejiang Shuangyuan Technology's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 88% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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.

Click here to see how much of its profit Zhejiang Shuangyuan Technology 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. Earnings per share are basically flat over the past 12 months. The best dividend stocks all grow their earnings per share over the long run, but it is hard to draw strong conclusions from any one year period.

Given that Zhejiang Shuangyuan Technology has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Is Zhejiang Shuangyuan Technology worth buying for its dividend? It's not great to see earnings per share have been flat and that the company paid out an uncomfortably high percentage of its cash flow over the past year. Cash flows are typically more volatile than earnings, but this is still not what we like to see. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Zhejiang Shuangyuan Technology don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 4 warning signs for Zhejiang Shuangyuan Technology (2 don't sit too well with us!) that you ought to be aware of before buying the 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.