Changzheng Engineering Technology Co.,Ltd (SHSE:603698) is about to trade ex-dividend in the next 3 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 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, Changzheng Engineering TechnologyLtd investors that purchase the stock on or after the 5th of July will not receive the dividend, which will be paid on the 5th of July.

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. Calculating the last year's worth of payments shows that Changzheng Engineering TechnologyLtd has a trailing yield of 0.9% on the current share price of CN¥12.02. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Changzheng Engineering TechnologyLtd has been able to grow its dividends, or if the dividend might be cut.

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. Changzheng Engineering TechnologyLtd paid out a comfortable 35% of its profit last year. 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. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 Changzheng Engineering TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Changzheng Engineering TechnologyLtd's earnings per share have dropped 5.8% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Changzheng Engineering TechnologyLtd has increased its dividend at approximately 9.0% a year on average.

To Sum It Up

Should investors buy Changzheng Engineering TechnologyLtd for the upcoming dividend? Earnings per share have fallen significantly, although at least Changzheng Engineering TechnologyLtd paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into Changzheng Engineering TechnologyLtd, it's worth knowing the risks this business faces. To help with this, we've discovered 2 warning signs for Changzheng Engineering TechnologyLtd that you should be aware of before investing in their shares.

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.

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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.

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