Nanjing Inform Storage Equipment (Group) Co., Ltd. (SHSE:603066) stock is about to trade ex-dividend in 3 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Nanjing Inform Storage Equipment (Group)'s shares on or after the 3rd of July will not receive the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be CN¥0.091 per share, on the back of last year when the company paid a total of CN¥0.091 to shareholders. Based on the last year's worth of payments, Nanjing Inform Storage Equipment (Group) stock has a trailing yield of around 0.8% on the current share price of CN¥11.92. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Nanjing Inform Storage Equipment (Group) has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Nanjing Inform Storage Equipment (Group)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nanjing Inform Storage Equipment (Group) is paying out just 17% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out an unsustainably high 348% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Nanjing Inform Storage Equipment (Group) is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Nanjing Inform Storage Equipment (Group) paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Nanjing Inform Storage Equipment (Group)'s ability to maintain its dividend.

Click here to see how much of its profit Nanjing Inform Storage Equipment (Group) paid out over the last 12 months.

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. For this reason, we're glad to see Nanjing Inform Storage Equipment (Group)'s earnings per share have risen 14% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Nanjing Inform Storage Equipment (Group) has lifted its dividend by approximately 1.3% 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.

The Bottom Line

Should investors buy Nanjing Inform Storage Equipment (Group) for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, it's hard to get excited about Nanjing Inform Storage Equipment (Group) from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Nanjing Inform Storage Equipment (Group) that we recommend you consider before investing in the business.

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.