Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hundsun Technologies Inc. (SHSE:600570) is about to go ex-dividend in just 4 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 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 Hundsun Technologies' shares before the 11th of June in order to be eligible for the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be CN¥0.13 per share, and in the last 12 months, the company paid a total of CN¥0.13 per share. Looking at the last 12 months of distributions, Hundsun Technologies has a trailing yield of approximately 0.7% on its current stock price of CN¥19.39. If you buy this business for its dividend, you should have an idea of whether Hundsun Technologies's dividend is reliable and sustainable. So we need to investigate whether Hundsun Technologies can afford its dividend, and if the dividend could grow.

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. Hundsun Technologies has a low and conservative payout ratio of just 21% of its income after tax. 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. Hundsun Technologies paid out more free cash flow than it generated - 196%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Hundsun Technologies paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Hundsun Technologies's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Hundsun Technologies's earnings per share have risen 13% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Hundsun Technologies has lifted its dividend by approximately 9.6% 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.

The Bottom Line

Has Hundsun Technologies got what it takes to maintain its dividend payments? We like that Hundsun Technologies has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. All things considered, we are not particularly enthused about Hundsun Technologies from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 1 warning sign for Hundsun Technologies you should know about.

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

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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.