Guangdong PAK Corporation Co., Ltd. (SZSE:300625) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Guangdong PAK Corporation's shares on or after the 28th of May, you won't be eligible to receive the dividend, when it is paid on the 28th of May.

The company's upcoming dividend is CN¥0.60 a share, following on from the last 12 months, when the company distributed a total of CN¥0.60 per share to shareholders. Based on the last year's worth of payments, Guangdong PAK Corporation stock has a trailing yield of around 4.8% on the current share price of CN¥12.49. If you buy this business for its dividend, you should have an idea of whether Guangdong PAK Corporation's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Guangdong PAK Corporation generated enough free cash flow to afford its dividend. It paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Guangdong PAK Corporation'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 how much of its profit Guangdong PAK Corporation paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Guangdong PAK Corporation, with earnings per share up 3.0% on average over the last five years. A high payout ratio of 81% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Guangdong PAK Corporation could be signalling that its future growth prospects are thin.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Guangdong PAK Corporation's dividend payments per share have declined at 12% per year on average over the past six years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Should investors buy Guangdong PAK Corporation for the upcoming dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you want to look further into Guangdong PAK Corporation, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for Guangdong PAK Corporation that we strongly recommend you have a look at before investing in the company.

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.