It looks like Ningbo Runhe High-Tech Materials Co., Ltd. (SZSE:300727) is about to go ex-dividend in the next couple of days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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 Ningbo Runhe High-Tech Materials' shares before the 23rd of May in order to receive the dividend, which the company will pay on the 23rd of May.

The company's next dividend payment will be CN¥0.20 per share, on the back of last year when the company paid a total of CN¥0.20 to shareholders. Looking at the last 12 months of distributions, Ningbo Runhe High-Tech Materials has a trailing yield of approximately 0.8% on its current stock price of CN¥25.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Ningbo Runhe High-Tech Materials has been able to grow its dividends, or if the dividend might be cut.

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. Ningbo Runhe High-Tech Materials 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. It paid out 25% of its free cash flow as dividends last year, which is conservatively low.

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. This is why it's a relief to see Ningbo Runhe High-Tech Materials earnings per share are up 5.5% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Ningbo Runhe High-Tech Materials has lifted its dividend by approximately 17% 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.

To Sum It Up

Is Ningbo Runhe High-Tech Materials an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Ningbo Runhe High-Tech Materials 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Ningbo Runhe High-Tech Materials is halfway there. There's a lot to like about Ningbo Runhe High-Tech Materials, and we would prioritise taking a closer look at it.

While it's tempting to invest in Ningbo Runhe High-Tech Materials for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Ningbo Runhe High-Tech Materials (at least 1 which is significant), and understanding these should be part of your investment process.

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.