It looks like Xiamen East Asia Machinery Industrial Co., Ltd. (SZSE:301028) is about to go ex-dividend in the next three 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 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. Thus, you can purchase Xiamen East Asia Machinery Industrial's shares before the 9th of June in order to receive the dividend, which the company will pay on the 9th of June.

The company's upcoming dividend is CN¥0.15 a share, following on from the last 12 months, when the company distributed a total of CN¥0.15 per share to shareholders. Calculating the last year's worth of payments shows that Xiamen East Asia Machinery Industrial has a trailing yield of 1.4% on the current share price of CN¥10.83. If you buy this business for its dividend, you should have an idea of whether Xiamen East Asia Machinery Industrial'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.

See our latest analysis for Xiamen East Asia Machinery Industrial

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. That's why it's good to see Xiamen East Asia Machinery Industrial paying out a modest 38% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 30% of its free cash flow in the past year.

It's positive to see that Xiamen East Asia Machinery Industrial'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 Xiamen East Asia Machinery Industrial paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Xiamen East Asia Machinery Industrial earnings per share are up 3.3% per annum over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Xiamen East Asia Machinery Industrial has seen its dividend decline 32% per annum on average over the past two years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is Xiamen East Asia Machinery Industrial worth buying for its dividend? Earnings per share have been growing moderately, and Xiamen East Asia Machinery Industrial is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Xiamen East Asia Machinery Industrial is being conservative with its dividend payouts and could still perform reasonably over the long run. Xiamen East Asia Machinery Industrial looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Xiamen East Asia Machinery Industrial has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Xiamen East Asia Machinery Industrial you should be aware of.

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.