Xiamen Amoytop Biotech Co., Ltd. (SHSE:688278) is about to trade ex-dividend in the next day or so. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Thus, you can purchase Xiamen Amoytop Biotech's shares before the 23rd of May in order to receive the dividend, which the company will pay on the 23rd of May.

The company's upcoming dividend is CN¥0.41 a share, following on from the last 12 months, when the company distributed a total of CN¥0.41 per share to shareholders. Last year's total dividend payments show that Xiamen Amoytop Biotech has a trailing yield of 0.7% on the current share price of CN¥57.62. If you buy this business for its dividend, you should have an idea of whether Xiamen Amoytop Biotech's dividend is reliable and sustainable. So we need to investigate whether Xiamen Amoytop Biotech 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. Fortunately Xiamen Amoytop Biotech's payout ratio is modest, at just 28% of profit. 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. Fortunately, it paid out only 36% of its free cash flow in the past year.

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 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Xiamen Amoytop Biotech's earnings have been skyrocketing, up 106% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Xiamen Amoytop Biotech has delivered an average of 101% per year annual increase in its dividend, based on the past four years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Xiamen Amoytop Biotech worth buying for its dividend? We love that Xiamen Amoytop Biotech is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Xiamen Amoytop Biotech, and we would prioritise taking a closer look at it.

So while Xiamen Amoytop Biotech looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 2 warning signs we've spotted with Xiamen Amoytop Biotech (including 1 which is a bit concerning).

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.