Readers hoping to buy China Science Publishing & Media Ltd. (SHSE:601858) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase China Science Publishing & Media's shares before the 15th of July in order to receive the dividend, which the company will pay on the 15th of July.

The company's next dividend payment will be CN¥0.26 per share. Last year, in total, the company distributed CN¥0.26 to shareholders. Last year's total dividend payments show that China Science Publishing & Media has a trailing yield of 1.4% on the current share price of CN¥18.54. 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 investigate whether China Science Publishing & Media 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. That's why it's good to see China Science Publishing & Media paying out a modest 40% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 62% of its free cash flow as dividends, within the usual range for most companies.

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 China Science Publishing & Media paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see China Science Publishing & Media earnings per share are up 3.3% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past seven years, China Science Publishing & Media has increased its dividend at approximately 34% 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.

To Sum It Up

Should investors buy China Science Publishing & Media for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that China Science Publishing & Media is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy China Science Publishing & Media today.

On that note, you'll want to research what risks China Science Publishing & Media is facing. For example, we've found 1 warning sign for China Science Publishing & Media that we recommend you consider before investing in the business.

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