Zhejiang Wanfeng Auto Wheel Co., Ltd. (SZSE:002085) is about to trade ex-dividend in the next four 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Zhejiang Wanfeng Auto Wheel's shares before the 3rd of June in order to be eligible for the dividend, which will be paid on the 3rd of June.

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. Based on the last year's worth of payments, Zhejiang Wanfeng Auto Wheel has a trailing yield of 1.0% on the current stock price of CN¥15.47. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. Zhejiang Wanfeng Auto Wheel paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether Zhejiang Wanfeng Auto Wheel generated enough free cash flow to afford its dividend. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

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 how much of its profit Zhejiang Wanfeng Auto Wheel paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Zhejiang Wanfeng Auto Wheel's earnings per share have been shrinking at 4.4% a year over the previous five years.

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, 10 years ago, Zhejiang Wanfeng Auto Wheel has lifted its dividend by approximately 4.7% a year on average.

To Sum It Up

Should investors buy Zhejiang Wanfeng Auto Wheel for the upcoming dividend? Earnings per share have fallen significantly, although at least Zhejiang Wanfeng Auto Wheel paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you're not too concerned about Zhejiang Wanfeng Auto Wheel's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 3 warning signs for Zhejiang Wanfeng Auto Wheel that we strongly recommend you have a look at before investing in the company.

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.