It looks like Raytron Technology Co.,Ltd. (SHSE:688002) is about to go ex-dividend in the next three days. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Raytron TechnologyLtd's shares on or after the 4th of July will not receive the dividend, which will be paid on the 4th of July.

The company's upcoming dividend is CN¥0.12 a share, following on from the last 12 months, when the company distributed a total of CN¥0.12 per share to shareholders. Last year's total dividend payments show that Raytron TechnologyLtd has a trailing yield of 0.4% on the current share price of CN¥27.97. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Raytron TechnologyLtd is paying out just 9.9% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Raytron TechnologyLtd generated enough free cash flow to afford its dividend. Raytron TechnologyLtd paid out more free cash flow than it generated - 121%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Raytron TechnologyLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Raytron TechnologyLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Raytron TechnologyLtd's earnings have been skyrocketing, up 27% per annum for the past five years. Earnings have been growing quickly, 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. Raytron TechnologyLtd has delivered an average of 27% per year annual increase in its dividend, based on the past four years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Raytron TechnologyLtd an attractive dividend stock, or better left on the shelf? We like that Raytron TechnologyLtd has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about Raytron TechnologyLtd from a dividend perspective.

Curious what other investors think of Raytron TechnologyLtd? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

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