Shanghai Rural Commercial Bank Co., Ltd. (SHSE:601825) is about to trade ex-dividend in the next 2 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 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. In other words, investors can purchase Shanghai Rural Commercial Bank's shares before the 26th of June in order to be eligible for the dividend, which will be paid on the 26th of June.

The company's next dividend payment will be CN¥0.379 per share, on the back of last year when the company paid a total of CN¥0.38 to shareholders. Based on the last year's worth of payments, Shanghai Rural Commercial Bank stock has a trailing yield of around 5.5% on the current share price of CN¥6.84. 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. That's why it's good to see Shanghai Rural Commercial Bank paying out a modest 30% of its earnings.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Shanghai Rural Commercial Bank earnings per share are up 6.8% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last three years, Shanghai Rural Commercial Bank has lifted its dividend by approximately 13% 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.

Final Takeaway

Has Shanghai Rural Commercial Bank got what it takes to maintain its dividend payments? Shanghai Rural Commercial Bank has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. In summary, Shanghai Rural Commercial Bank appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in Shanghai Rural Commercial Bank for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Shanghai Rural Commercial Bank 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com