Readers hoping to buy Changsha DIALINE New Material Sci.&Tech. Co., Ltd. (SZSE:300700) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Thus, you can purchase Changsha DIALINE New Material Sci.&Tech's shares before the 13th of May in order to receive the dividend, which the company will pay on the 13th of May.

The company's upcoming dividend is CN¥0.125 a share, following on from the last 12 months, when the company distributed a total of CN¥0.12 per share to shareholders. Looking at the last 12 months of distributions, Changsha DIALINE New Material Sci.&Tech has a trailing yield of approximately 1.1% on its current stock price of CN¥11.58. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Changsha DIALINE New Material Sci.&Tech paying out a modest 35% 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. The good news is it paid out just 14% of its free cash flow in the last year.

It's positive to see that Changsha DIALINE New Material Sci.&Tech's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Fortunately for readers, Changsha DIALINE New Material Sci.&Tech's earnings per share have been growing at 13% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

We'd also point out that Changsha DIALINE New Material Sci.&Tech issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Changsha DIALINE New Material Sci.&Tech dividends are largely the same as they were six years ago.

To Sum It Up

Is Changsha DIALINE New Material Sci.&Tech worth buying for its dividend? Changsha DIALINE New Material Sci.&Tech has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past six years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Changsha DIALINE New Material Sci.&Tech for the dividends alone, you should always be mindful of the risks involved. For example - Changsha DIALINE New Material Sci.&Tech has 2 warning signs we think you should be aware of.

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.