Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Anker Innovations Limited (SZSE:300866) is about to trade ex-dividend in the next day or two. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Anker Innovations investors that purchase the stock on or after the 11th of September will not receive the dividend, which will be paid on the 11th of September.

The company's upcoming dividend is CN¥0.60 a share, following on from the last 12 months, when the company distributed a total of CN¥1.20 per share to shareholders. Calculating the last year's worth of payments shows that Anker Innovations has a trailing yield of 1.9% on the current share price of CN¥64.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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. Anker Innovations paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Anker Innovations generated enough free cash flow to afford its dividend. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Anker Innovations'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Anker Innovations's earnings have been skyrocketing, up 28% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Anker Innovations could have strong prospects for future increases to the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last three years, Anker Innovations has lifted its dividend by approximately 25% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Anker Innovations? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Anker Innovations's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 68% and 52% respectively. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Anker Innovations is facing. Case in point: We've spotted 1 warning sign for Anker Innovations you should be aware of.

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.