CRCC High-Tech Equipment Corporation Limited (HKG:1786) stock is about to trade ex-dividend in three 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. This means that investors who purchase CRCC High-Tech Equipment's shares on or after the 4th of July will not receive the dividend, which will be paid on the 22nd of August.

The company's next dividend payment will be CN¥0.03 per share. Last year, in total, the company distributed CN¥0.03 to shareholders. Looking at the last 12 months of distributions, CRCC High-Tech Equipment has a trailing yield of approximately 4.7% on its current stock price of HK$0.69. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether CRCC High-Tech Equipment can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CRCC High-Tech Equipment paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether CRCC High-Tech Equipment generated enough free cash flow to afford its dividend. Dividends consumed 65% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 CRCC High-Tech Equipment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that CRCC High-Tech Equipment's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CRCC High-Tech Equipment has seen its dividend decline 3.5% per annum on average over the past eight years, which is not great to see.

Final Takeaway

Has CRCC High-Tech Equipment got what it takes to maintain its dividend payments? Its earnings per share are effectively flat in recent times. The company paid out less than half its income and more than half its cash flow as dividends to shareholders. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in CRCC High-Tech Equipment as a potential investment, you should definitely consider some of the risks involved with CRCC High-Tech Equipment. To help with this, we've discovered 3 warning signs for CRCC High-Tech Equipment (1 doesn't sit too well with us!) that you ought to be aware of before buying the 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.

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