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 China Merchants Expressway Network & Technology Holdings Co.,Ltd. (SZSE:001965) is about to go ex-dividend in just four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase China Merchants Expressway Network & Technology HoldingsLtd's shares on or after the 30th of July will not receive the dividend, which will be paid on the 30th of July.

The company's next dividend payment will be CN¥0.531 per share, on the back of last year when the company paid a total of CN¥0.53 to shareholders. Last year's total dividend payments show that China Merchants Expressway Network & Technology HoldingsLtd has a trailing yield of 4.3% on the current share price of CN¥12.49. 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. China Merchants Expressway Network & Technology HoldingsLtd 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 more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see China Merchants Expressway Network & Technology HoldingsLtd earnings per share are up 9.2% per annum over the last five years. Decent historical earnings per share growth suggests China Merchants Expressway Network & Technology HoldingsLtd has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, China Merchants Expressway Network & Technology HoldingsLtd has lifted its dividend by approximately 16% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is China Merchants Expressway Network & Technology HoldingsLtd worth buying for its dividend? Earnings per share have been growing modestly and China Merchants Expressway Network & Technology HoldingsLtd paid out a bit over half of its earnings and free cash flow last year. 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.

With that being said, if dividends aren't your biggest concern with China Merchants Expressway Network & Technology HoldingsLtd, you should know about the other risks facing this business. Be aware that China Merchants Expressway Network & Technology HoldingsLtd is showing 3 warning signs in our investment analysis, and 1 of those is concerning...

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