Zhejiang Zhaofeng Mechanical and Electronic Co.,Ltd. (SZSE:300695) is about to trade ex-dividend in the next 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. 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. In other words, investors can purchase Zhejiang Zhaofeng Mechanical and ElectronicLtd's shares before the 11th of October in order to be eligible for the dividend, which will be paid on the 11th of October.

The company's next dividend payment will be CN¥0.705048 per share, on the back of last year when the company paid a total of CN¥1.40 to shareholders. Based on the last year's worth of payments, Zhejiang Zhaofeng Mechanical and ElectronicLtd stock has a trailing yield of around 3.3% on the current share price of CN¥42.76. If you buy this business for its dividend, you should have an idea of whether Zhejiang Zhaofeng Mechanical and ElectronicLtd's dividend is reliable and sustainable. So we need to investigate whether Zhejiang Zhaofeng Mechanical and ElectronicLtd 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. Zhejiang Zhaofeng Mechanical and ElectronicLtd paid out a comfortable 29% of its profit last year. 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 0.09% 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 how much of its profit Zhejiang Zhaofeng Mechanical and ElectronicLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Zhejiang Zhaofeng Mechanical and ElectronicLtd's earnings per share have been shrinking at 3.6% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Zhejiang Zhaofeng Mechanical and ElectronicLtd's dividend payments per share have declined at 1.0% per year on average over the past six years, which is uninspiring.

To Sum It Up

Is Zhejiang Zhaofeng Mechanical and ElectronicLtd an attractive dividend stock, or better left on the shelf? Zhejiang Zhaofeng Mechanical and ElectronicLtd 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. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

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 Zhejiang Zhaofeng Mechanical and ElectronicLtd (of which 1 shouldn't be ignored!) 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.

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