Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see JDM JingDaMachine (Ningbo) Co.Ltd (SHSE:603088) is about to trade ex-dividend in the next three 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. 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. Therefore, if you purchase JDM JingDaMachine (Ningbo)Ltd's shares on or after the 31st of May, you won't be eligible to receive the dividend, when it is paid on the 31st of May.

The company's next dividend payment will be CN¥0.29 per share, and in the last 12 months, the company paid a total of CN¥0.29 per share. Based on the last year's worth of payments, JDM JingDaMachine (Ningbo)Ltd stock has a trailing yield of around 3.6% on the current share price of CN¥8.06. If you buy this business for its dividend, you should have an idea of whether JDM JingDaMachine (Ningbo)Ltd'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. JDM JingDaMachine (Ningbo)Ltd paid out 74% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether JDM JingDaMachine (Ningbo)Ltd generated enough free cash flow to afford its dividend. It paid out more than half (69%) of its free cash flow in the past year, which is within an average 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 JDM JingDaMachine (Ningbo)Ltd 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 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 JDM JingDaMachine (Ningbo)Ltd's earnings have been skyrocketing, up 33% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, JDM JingDaMachine (Ningbo)Ltd could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. JDM JingDaMachine (Ningbo)Ltd has delivered 26% dividend growth per year on average over the past nine years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is JDM JingDaMachine (Ningbo)Ltd worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that JDM JingDaMachine (Ningbo)Ltd is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of JDM JingDaMachine (Ningbo)Ltd's dividend merits.

On that note, you'll want to research what risks JDM JingDaMachine (Ningbo)Ltd is facing. For example, we've found 1 warning sign for JDM JingDaMachine (Ningbo)Ltd 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.