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 Shenzhen Crastal Technology Co.,Ltd (SZSE:300824) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. This means that investors who purchase Shenzhen Crastal TechnologyLtd's shares on or after the 8th of May will not receive the dividend, which will be paid on the 8th of May.

The company's upcoming dividend is CN¥0.20 a share, following on from the last 12 months, when the company distributed a total of CN¥0.20 per share to shareholders. Calculating the last year's worth of payments shows that Shenzhen Crastal TechnologyLtd has a trailing yield of 2.2% on the current share price of CN¥8.91. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shenzhen Crastal TechnologyLtd has been able to grow its dividends, or if the dividend might be cut.

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. It paid out 86% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Fortunately, it paid out only 50% of its free cash flow in the past year.

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?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Shenzhen Crastal TechnologyLtd's earnings are down 3.4% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shenzhen Crastal TechnologyLtd's dividend payments per share have declined at 6.9% per year on average over the past four years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Should investors buy Shenzhen Crastal TechnologyLtd for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Shenzhen Crastal TechnologyLtd's dividend merits.

So if you want to do more digging on Shenzhen Crastal TechnologyLtd, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 1 warning sign for Shenzhen Crastal TechnologyLtd you should know about.

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.