It looks like Zhongzhong Science & Technology (Tianjin) Co., Ltd. (SHSE:603135) is about to go ex-dividend in the next 4 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Zhongzhong Science & Technology (Tianjin) investors that purchase the stock on or after the 17th of July will not receive the dividend, which will be paid on the 17th of July.

The company's next dividend payment will be CN¥0.20 per share, on the back of last year when the company paid a total of CN¥0.20 to shareholders. Calculating the last year's worth of payments shows that Zhongzhong Science & Technology (Tianjin) has a trailing yield of 1.6% on the current share price of CN¥12.46. If you buy this business for its dividend, you should have an idea of whether Zhongzhong Science & Technology (Tianjin)'s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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. Zhongzhong Science & Technology (Tianjin) paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Zhongzhong Science & Technology (Tianjin) generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Zhongzhong Science & Technology (Tianjin)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Zhongzhong Science & Technology (Tianjin) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Zhongzhong Science & Technology (Tianjin)'s earnings per share have dropped 26% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Given that Zhongzhong Science & Technology (Tianjin) has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Is Zhongzhong Science & Technology (Tianjin) an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Zhongzhong Science & Technology (Tianjin)'s dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Zhongzhong Science & Technology (Tianjin) has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Zhongzhong Science & Technology (Tianjin) don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 1 warning sign for Zhongzhong Science & Technology (Tianjin) and you should be aware of it before buying any shares.

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.

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