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 Asian Star Anchor Chain Co., Ltd. Jiangsu (SHSE:601890) is about to go ex-dividend in just four 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. Accordingly, Asian Star Anchor Chain Jiangsu investors that purchase the stock on or after the 17th of June will not receive the dividend, which will be paid on the 17th of June.

The company's upcoming dividend is CN¥0.105 a share, following on from the last 12 months, when the company distributed a total of CN¥0.10 per share to shareholders. Based on the last year's worth of payments, Asian Star Anchor Chain Jiangsu has a trailing yield of 1.4% on the current stock price of CN¥7.74. 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 Asian Star Anchor Chain Jiangsu's payout ratio is modest, at just 41% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (82%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Asian Star Anchor Chain Jiangsu's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Asian Star Anchor Chain Jiangsu's earnings have been skyrocketing, up 31% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, Asian Star Anchor Chain Jiangsu has lifted its dividend by approximately 18% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Asian Star Anchor Chain Jiangsu for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Asian Star Anchor Chain Jiangsu paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Asian Star Anchor Chain Jiangsu, and we would prioritise taking a closer look at it.

While it's tempting to invest in Asian Star Anchor Chain Jiangsu for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Asian Star Anchor Chain Jiangsu and you should be aware of this before buying any shares.

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.