Shenzhen Fortune Trend technology Co., Ltd. (SHSE:688318) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Shenzhen Fortune Trend technology investors that purchase the stock on or after the 18th of October will not receive the dividend, which will be paid on the 18th of October.

The company's next dividend payment will be CN¥0.11 per share, on the back of last year when the company paid a total of CN¥0.57 to shareholders. Based on the last year's worth of payments, Shenzhen Fortune Trend technology stock has a trailing yield of around 0.4% on the current share price of CN¥145.29. If you buy this business for its dividend, you should have an idea of whether Shenzhen Fortune Trend technology's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Fortunately Shenzhen Fortune Trend technology's payout ratio is modest, at just 43% of profit. 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 paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.

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 Shenzhen Fortune Trend technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Shenzhen Fortune Trend technology, with earnings per share up 9.0% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Shenzhen Fortune Trend technology has lifted its dividend by approximately 6.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Shenzhen Fortune Trend technology? Earnings per share have been growing at a steady rate, and Shenzhen Fortune Trend technology paid out less than half its profits and more than half its free cash flow as dividends over the last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Shenzhen Fortune Trend technology's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for Shenzhen Fortune Trend technology that you should be aware of before investing in their shares.

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.