Zhejiang Jiecang Linear Motion Technology Co.,Ltd. (SHSE:603583) stock is about to trade ex-dividend in 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Zhejiang Jiecang Linear Motion TechnologyLtd's shares on or after the 6th of June, you won't be eligible to receive the dividend, when it is paid on the 6th of June.

The company's next dividend payment will be CN¥0.17 per share, and in the last 12 months, the company paid a total of CN¥0.17 per share. Based on the last year's worth of payments, Zhejiang Jiecang Linear Motion TechnologyLtd stock has a trailing yield of around 0.9% on the current share price of CN¥18.98. 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. Fortunately Zhejiang Jiecang Linear Motion TechnologyLtd's payout ratio is modest, at just 26% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 28% of its free cash flow as dividends, a comfortable payout level 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Zhejiang Jiecang Linear Motion TechnologyLtd's earnings per share have fallen at approximately 5.6% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang Jiecang Linear Motion TechnologyLtd has seen its dividend decline 14% per annum on average over the past five years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is Zhejiang Jiecang Linear Motion TechnologyLtd an attractive dividend stock, or better left on the shelf? Zhejiang Jiecang Linear Motion TechnologyLtd has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Zhejiang Jiecang Linear Motion TechnologyLtd's dividend merits.

On that note, you'll want to research what risks Zhejiang Jiecang Linear Motion TechnologyLtd is facing. In terms of investment risks, we've identified 1 warning sign with Zhejiang Jiecang Linear Motion TechnologyLtd and understanding them should be part of your investment process.

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.