Giant Network Group Co., Ltd. (SZSE:002558) stock is about to trade ex-dividend in 3 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 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. Thus, you can purchase Giant Network Group's shares before the 6th of June in order to receive the dividend, which the company will pay on the 6th of June.

The company's next dividend payment will be CN¥0.08 per share. Last year, in total, the company distributed CN¥0.16 to shareholders. Calculating the last year's worth of payments shows that Giant Network Group has a trailing yield of 1.5% on the current share price of CN¥10.39. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Giant Network Group paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Giant Network Group 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Giant Network Group, with earnings per share up 3.4% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Giant Network Group has seen its dividend decline 0.6% per annum on average over the past seven years, which is not great to see.

The Bottom Line

Has Giant Network Group got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Giant Network Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 Giant Network Group is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Giant Network Group has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Giant Network Group that we recommend you consider before investing in the business.

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.