Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shenzhen Fortune Trend technology Co., Ltd. (SHSE:688318) is about to trade ex-dividend in the next 3 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Shenzhen Fortune Trend technology investors that purchase the stock on or after the 14th of June will not receive the dividend, which will be paid on the 14th of June.
The company's next dividend payment will be CN¥0.80 per share, on the back of last year when the company paid a total of CN¥0.80 to shareholders. Last year's total dividend payments show that Shenzhen Fortune Trend technology has a trailing yield of 0.7% on the current share price of CN¥117.79. If you buy this business for its dividend, you should have an idea of whether Shenzhen Fortune Trend technology's dividend is reliable and sustainable. As a result, readers should always check whether Shenzhen Fortune Trend technology has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Shenzhen Fortune Trend technology paying out a modest 34% of its earnings. A useful secondary check can be to evaluate whether Shenzhen Fortune Trend technology generated enough free cash flow to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level 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 how much of its profit Shenzhen Fortune Trend technology 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Shenzhen Fortune Trend technology, with earnings per share up 9.9% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shenzhen Fortune Trend technology has delivered an average of 6.9% per year annual increase in its dividend, based on the past four years of dividend payments. 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
Should investors buy Shenzhen Fortune Trend technology for the upcoming dividend? Earnings per share growth has been growing somewhat, and Shenzhen Fortune Trend technology is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Shenzhen Fortune Trend technology is halfway there. Overall we think this is an attractive combination and worthy of further research.
Keen to explore more data on Shenzhen Fortune Trend technology's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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.