Readers hoping to buy Guangzhou Risong Intelligent Technology Holding Co., Ltd. (SHSE:688090) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Guangzhou Risong Intelligent Technology Holding's shares before the 24th of June to receive the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be CN¥0.22 per share, on the back of last year when the company paid a total of CN¥0.22 to shareholders. Calculating the last year's worth of payments shows that Guangzhou Risong Intelligent Technology Holding has a trailing yield of 0.6% on the current share price of CN¥36.44. 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 Guangzhou Risong Intelligent Technology Holding paying out a modest 34% of its earnings. A useful secondary check can be to evaluate whether Guangzhou Risong Intelligent Technology Holding generated enough free cash flow to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

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 Guangzhou Risong Intelligent Technology Holding paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Guangzhou Risong Intelligent Technology Holding's earnings per share have fallen at approximately 12% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, Guangzhou Risong Intelligent Technology Holding has increased its dividend at approximately 5.1% a year on average.

Final Takeaway

Should investors buy Guangzhou Risong Intelligent Technology Holding for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Guangzhou Risong Intelligent Technology Holding from a dividend perspective.

While it's tempting to invest in Guangzhou Risong Intelligent Technology Holding for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 3 warning signs we've spotted with Guangzhou Risong Intelligent Technology Holding (including 1 which shouldn't be ignored).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com