It looks like Baimtec Material Co.,Ltd. (SHSE:688563) is about to go ex-dividend in the next three 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 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. Meaning, you will need to purchase Baimtec MaterialLtd's shares before the 14th of June to receive the dividend, which will be paid on the 14th of June.

The company's upcoming dividend is CN¥0.345 a share, following on from the last 12 months, when the company distributed a total of CN¥0.48 per share to shareholders. Based on the last year's worth of payments, Baimtec MaterialLtd stock has a trailing yield of around 0.9% on the current share price of CN¥53.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Baimtec MaterialLtd's payout ratio is modest, at just 33% of profit. 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. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, it's good to see earnings have grown 14% on last year. Baimtec MaterialLtd is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.

Baimtec MaterialLtd also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Given that Baimtec MaterialLtd has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

From a dividend perspective, should investors buy or avoid Baimtec MaterialLtd? Earnings per share have grown at a nice rate in recent times and over the last year, Baimtec MaterialLtd paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Baimtec MaterialLtd, and we would prioritise taking a closer look at it.

While it's tempting to invest in Baimtec MaterialLtd for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Baimtec MaterialLtd and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.