It looks like Zhenhai Petrochemical Engineering CO., LTD (SHSE:603637) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Zhenhai Petrochemical Engineering investors that purchase the stock on or after the 15th of June will not receive the dividend, which will be paid on the 15th of June.

The company's next dividend payment will be CN¥0.13 per share. Last year, in total, the company distributed CN¥0.13 to shareholders. Calculating the last year's worth of payments shows that Zhenhai Petrochemical Engineering has a trailing yield of 1.6% on the current share price of CN¥8.31. If you buy this business for its dividend, you should have an idea of whether Zhenhai Petrochemical Engineering's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Zhenhai Petrochemical Engineering

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. That's why it's good to see Zhenhai Petrochemical Engineering paying out a modest 29% of its earnings. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its cash flow last year.

It's positive to see that Zhenhai Petrochemical Engineering'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 Zhenhai Petrochemical Engineering paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Zhenhai Petrochemical Engineering's earnings per share have risen 20% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Zhenhai Petrochemical Engineering has lifted its dividend by approximately 7.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Zhenhai Petrochemical Engineering worth buying for its dividend? Zhenhai Petrochemical Engineering has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Zhenhai Petrochemical Engineering, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Zhenhai Petrochemical Engineering is facing. To help with this, we've discovered 2 warning signs for Zhenhai Petrochemical Engineering that you should be aware of before investing in their 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.