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 Chengdu Tianjian Technology Co., Ltd. (SZSE:002977) 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Chengdu Tianjian Technology's shares before the 18th of June in order to receive the dividend, which the company will pay on the 18th of June.

The company's next dividend payment will be CN¥0.18 per share, on the back of last year when the company paid a total of CN¥0.18 to shareholders. Last year's total dividend payments show that Chengdu Tianjian Technology has a trailing yield of 0.6% on the current share price of CN¥32.08. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Chengdu Tianjian Technology paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether Chengdu Tianjian Technology generated enough free cash flow to afford its dividend. Luckily it paid out just 8.3% 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 Chengdu Tianjian Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Chengdu Tianjian Technology's earnings per share have fallen at approximately 18% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, Chengdu Tianjian Technology has increased its dividend at approximately 11% a year on average.

The Bottom Line

Is Chengdu Tianjian Technology an attractive dividend stock, or better left on the shelf? Chengdu Tianjian Technology 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. In summary, it's hard to get excited about Chengdu Tianjian Technology from a dividend perspective.

On that note, you'll want to research what risks Chengdu Tianjian Technology is facing. Our analysis shows 3 warning signs for Chengdu Tianjian Technology that we strongly recommend you have a look at before investing in the company.

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.

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.