Aerosun Corporation (SHSE:600501) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. Meaning, you will need to purchase Aerosun's shares before the 24th of July to receive the dividend, which will be paid on the 24th of July.

The company's upcoming dividend is CN¥0.06004 a share, following on from the last 12 months, when the company distributed a total of CN¥0.06 per share to shareholders. Last year's total dividend payments show that Aerosun has a trailing yield of 0.5% on the current share price of CN¥11.99. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. An unusually high payout ratio of 354% of its profit suggests something is happening other than the usual distribution of profits to shareholders. 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. It paid out 8.5% of its free cash flow as dividends last year, which is conservatively low.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Aerosun fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Aerosun paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Aerosun's earnings have been skyrocketing, up 40% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Aerosun has lifted its dividend by approximately 7.2% 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

Is Aerosun an attractive dividend stock, or better left on the shelf? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Aerosun's paying out such a high percentage of its profit. To summarise, Aerosun looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Aerosun for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Aerosun (1 is a bit concerning!) that you ought to be aware of before buying the 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.

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