Zhejiang grandwall electric science&technology co.,ltd. (SHSE:603897) stock is about to trade ex-dividend in four days. 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. 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. In other words, investors can purchase Zhejiang grandwall electric science&technologyltd's shares before the 5th of June in order to be eligible for the dividend, which will be paid on the 5th of June.

The company's next dividend payment will be CN¥1.50 per share, and in the last 12 months, the company paid a total of CN¥2.00 per share. Calculating the last year's worth of payments shows that Zhejiang grandwall electric science&technologyltd has a trailing yield of 9.5% on the current share price of CN¥21.16. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Zhejiang grandwall electric science&technologyltd distributed an unsustainably high 171% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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 disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Zhejiang grandwall electric science&technologyltd fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Zhejiang grandwall electric science&technologyltd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Zhejiang grandwall electric science&technologyltd's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Zhejiang grandwall electric science&technologyltd has increased its dividend at approximately 68% a year on average.

The Bottom Line

Is Zhejiang grandwall electric science&technologyltd worth buying for its dividend? Earnings per share have been flat and, while Zhejiang grandwall electric science&technologyltd paid out just 28% of its cashflow, it paid out an uncomfortably high percentage of its profit. In summary, it's hard to get excited about Zhejiang grandwall electric science&technologyltd from a dividend perspective.

So if you want to do more digging on Zhejiang grandwall electric science&technologyltd, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for Zhejiang grandwall electric science&technologyltd you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.