Comba Telecom Systems Holdings Limited (HKG:2342) stock is about to trade ex-dividend in 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. This means that investors who purchase Comba Telecom Systems Holdings' shares on or after the 6th of June will not receive the dividend, which will be paid on the 19th of June.

The company's upcoming dividend is HK$0.011 a share, following on from the last 12 months, when the company distributed a total of HK$0.022 per share to shareholders. Last year's total dividend payments show that Comba Telecom Systems Holdings has a trailing yield of 1.6% on the current share price of HK$1.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Comba Telecom Systems Holdings

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. That's why it's good to see Comba Telecom Systems Holdings paying out a modest 31% of its earnings. 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 paid out 14% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Comba Telecom Systems Holdings'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Comba Telecom Systems Holdings has grown its earnings rapidly, up 44% a year for the past five years. Comba Telecom Systems Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, nine years ago, Comba Telecom Systems Holdings has lifted its dividend by approximately 4.4% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is Comba Telecom Systems Holdings an attractive dividend stock, or better left on the shelf? It's great that Comba Telecom Systems Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Comba Telecom Systems Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Comba Telecom Systems Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Comba Telecom Systems Holdings has 1 warning sign we think you should be aware of.

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.