Shenzhen New Industries Biomedical Engineering Co., Ltd. (SZSE:300832) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Shenzhen New Industries Biomedical Engineering's shares on or after the 15th of May, you won't be eligible to receive the dividend, when it is paid on the 15th of May.

The company's next dividend payment will be CN¥1.00 per share. Last year, in total, the company distributed CN¥1.00 to shareholders. Calculating the last year's worth of payments shows that Shenzhen New Industries Biomedical Engineering has a trailing yield of 1.3% on the current share price of CN¥77.83. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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. Fortunately Shenzhen New Industries Biomedical Engineering's payout ratio is modest, at just 46% of profit. A useful secondary check can be to evaluate whether Shenzhen New Industries Biomedical Engineering generated enough free cash flow to afford its dividend. Fortunately, it paid out only 48% of its free cash flow in the past 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 the company's payout ratio, plus analyst estimates of its future dividends.

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. 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 Shenzhen New Industries Biomedical Engineering's earnings per share have risen 17% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shenzhen New Industries Biomedical Engineering's dividend payments per share have declined at 11% per year on average over the past four years, which is uninspiring. 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.

Final Takeaway

Is Shenzhen New Industries Biomedical Engineering worth buying for its dividend? Shenzhen New Industries Biomedical Engineering has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past four years, but the conservative payout ratio makes the current dividend look sustainable. Shenzhen New Industries Biomedical Engineering looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Shenzhen New Industries Biomedical Engineering is facing. Our analysis shows 1 warning sign for Shenzhen New Industries Biomedical Engineering and you should be aware of this before buying any 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.