Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dnake (Xiamen) Intelligent Technology Co., Ltd. (SZSE:300884) is about to trade ex-dividend in the next 2 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Dnake (Xiamen) Intelligent Technology's shares on or after the 29th of May will not receive the dividend, which will be paid on the 29th of May.

The company's upcoming dividend is CN¥0.30 a share, following on from the last 12 months, when the company distributed a total of CN¥0.15 per share to shareholders. Last year's total dividend payments show that Dnake (Xiamen) Intelligent Technology has a trailing yield of 1.6% on the current share price of CN¥9.38. If you buy this business for its dividend, you should have an idea of whether Dnake (Xiamen) Intelligent Technology's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Dnake (Xiamen) Intelligent Technology's payout ratio is modest, at just 42% 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. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Dnake (Xiamen) Intelligent Technology'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 Dnake (Xiamen) Intelligent Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Dnake (Xiamen) Intelligent Technology earnings per share are up 8.3% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dnake (Xiamen) Intelligent Technology has delivered 16% dividend growth per year on average over the past three years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has Dnake (Xiamen) Intelligent Technology got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Dnake (Xiamen) Intelligent Technology is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Dnake (Xiamen) Intelligent Technology is halfway there. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Dnake (Xiamen) Intelligent Technology is facing. To that end, you should learn about the 3 warning signs we've spotted with Dnake (Xiamen) Intelligent Technology (including 1 which is significant).

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.