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 COSCO SHIPPING Specialized Carriers Co.,Ltd. (SHSE:600428) is about to go ex-dividend in just 3 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase COSCO SHIPPING Specialized CarriersLtd's shares on or after the 22nd of July, you won't be eligible to receive the dividend, when it is paid on the 22nd of July.

The company's upcoming dividend is CN¥0.248 a share, following on from the last 12 months, when the company distributed a total of CN¥0.25 per share to shareholders. Looking at the last 12 months of distributions, COSCO SHIPPING Specialized CarriersLtd has a trailing yield of approximately 4.1% on its current stock price of CN¥6.01. 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 COSCO SHIPPING Specialized CarriersLtd can afford its dividend, and if the dividend could grow.

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. COSCO SHIPPING Specialized CarriersLtd is paying out an acceptable 52% of its profit, a common payout level among most companies. 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 58% 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 the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see COSCO SHIPPING Specialized CarriersLtd's earnings have been skyrocketing, up 64% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, COSCO SHIPPING Specialized CarriersLtd has lifted its dividend by approximately 32% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Has COSCO SHIPPING Specialized CarriersLtd got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see COSCO SHIPPING Specialized CarriersLtd's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 52% and 58% respectively. 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.

While it's tempting to invest in COSCO SHIPPING Specialized CarriersLtd for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for COSCO SHIPPING Specialized CarriersLtd you should be aware of.

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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