Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see New DaZheng Property Group Co., LTD (SZSE:002968) is about to trade ex-dividend in the next 2 days. 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. 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, New DaZheng Property Group investors that purchase the stock on or after the 28th of June will not receive the dividend, which will be paid on the 28th of June.

The company's upcoming dividend is CN¥0.285 a share, following on from the last 12 months, when the company distributed a total of CN¥0.28 per share to shareholders. Last year's total dividend payments show that New DaZheng Property Group has a trailing yield of 3.1% on the current share price of CN¥9.26. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether New DaZheng Property Group can afford its dividend, and if the dividend could grow.

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. New DaZheng Property Group paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether New DaZheng Property Group generated enough free cash flow to afford its dividend. It paid out 94% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

New DaZheng Property Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to New DaZheng Property Group's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see New DaZheng Property Group earnings per share are up 5.2% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. New DaZheng Property Group has delivered an average of 9.7% 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.

The Bottom Line

Should investors buy New DaZheng Property Group for the upcoming dividend? New DaZheng Property Group delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 94% of its cash flow over the last year, which is a mediocre outcome. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of New DaZheng Property Group's dividend merits.

However if you're still interested in New DaZheng Property Group as a potential investment, you should definitely consider some of the risks involved with New DaZheng Property Group. For example, we've found 3 warning signs for New DaZheng Property Group that we recommend you consider before investing in the business.

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.

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