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 Shanghai Huide Science & Technology Co.,Ltd (SHSE:603192) is about to go ex-dividend in just two 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, Shanghai Huide Science & TechnologyLtd investors that purchase the stock on or after the 8th of June will not receive the dividend, which will be paid on the 8th of June.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.15 to shareholders. Calculating the last year's worth of payments shows that Shanghai Huide Science & TechnologyLtd has a trailing yield of 0.8% on the current share price of CN¥19.53. 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.

See our latest analysis for Shanghai Huide Science & TechnologyLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shanghai Huide Science & TechnologyLtd paid out a comfortable 34% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 71% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Shanghai Huide Science & TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Shanghai Huide Science & TechnologyLtd's earnings per share have dropped 18% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shanghai Huide Science & TechnologyLtd's dividend payments per share have declined at 14% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is Shanghai Huide Science & TechnologyLtd worth buying for its dividend? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. All things considered, we are not particularly enthused about Shanghai Huide Science & TechnologyLtd from a dividend perspective.

If you're not too concerned about Shanghai Huide Science & TechnologyLtd's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 3 warning signs for Shanghai Huide Science & TechnologyLtd (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

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.