Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that G-bits Network Technology (Xiamen) Co., Ltd. (SHSE:603444) is about to go ex-dividend in just 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase G-bits Network Technology (Xiamen)'s shares before the 25th of November to receive the dividend, which will be paid on the 25th of November.

The company's next dividend payment will be CN¥2.00 per share, on the back of last year when the company paid a total of CN¥9.00 to shareholders. Calculating the last year's worth of payments shows that G-bits Network Technology (Xiamen) has a trailing yield of 4.3% on the current share price of CN¥207.63. 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 G-bits Network Technology (Xiamen) 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. G-bits Network Technology (Xiamen) paid out a comfortable 35% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that G-bits Network Technology (Xiamen)'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at G-bits Network Technology (Xiamen), with earnings per share up 4.9% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. G-bits Network Technology (Xiamen) has delivered an average of 10% per year annual increase in its dividend, based on the past eight years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has G-bits Network Technology (Xiamen) got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and G-bits Network Technology (Xiamen) is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but G-bits Network Technology (Xiamen) is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

So while G-bits Network Technology (Xiamen) looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - G-bits Network Technology (Xiamen) has 1 warning sign we think you should be aware of.

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.