Amoy Diagnostics Co., Ltd. (SZSE:300685) stock is about to trade ex-dividend in 2 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 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 Amoy Diagnostics' shares before the 30th of May in order to receive the dividend, which the company will pay on the 30th of May.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.15 to shareholders. Last year's total dividend payments show that Amoy Diagnostics has a trailing yield of 0.8% on the current share price of CN¥18.43. If you buy this business for its dividend, you should have an idea of whether Amoy Diagnostics'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.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Amoy Diagnostics paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Amoy Diagnostics generated enough free cash flow to afford its dividend. Luckily it paid out just 20% of its free cash flow last 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Amoy Diagnostics's earnings per share have risen 16% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, Amoy Diagnostics has lifted its dividend by approximately 20% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Amoy Diagnostics worth buying for its dividend? Amoy Diagnostics 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. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Amoy Diagnostics has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Amoy Diagnostics has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.