Hongli Zhihui Group Co.,Ltd. (SZSE:300219) stock is about to trade ex-dividend in three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Hongli Zhihui GroupLtd's shares before the 13th of June to receive the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.10 to shareholders. Based on the last year's worth of payments, Hongli Zhihui GroupLtd has a trailing yield of 1.7% on the current stock price of CN¥5.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Hongli Zhihui GroupLtd has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hongli Zhihui GroupLtd paid out a comfortable 37% of its profit last year. A useful secondary check can be to evaluate whether Hongli Zhihui GroupLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 11% 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 how much of its profit Hongli Zhihui GroupLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Hongli Zhihui GroupLtd's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Hongli Zhihui GroupLtd has lifted its dividend by approximately 24% a year on average.

Final Takeaway

Is Hongli Zhihui GroupLtd worth buying for its dividend? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. Overall, it's hard to get excited about Hongli Zhihui GroupLtd from a dividend perspective.

In light of that, while Hongli Zhihui GroupLtd has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Hongli Zhihui GroupLtd that we recommend you consider before investing in the business.

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.