Readers hoping to buy Nacity Property Service Group Co.,Ltd. (SHSE:603506) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Nacity Property Service GroupLtd's shares on or after the 12th of June, you won't be eligible to receive the dividend, when it is paid on the 12th of June.

The company's next dividend payment will be CN¥0.35057 per share. Last year, in total, the company distributed CN¥0.35 to shareholders. Last year's total dividend payments show that Nacity Property Service GroupLtd has a trailing yield of 3.8% on the current share price of CN¥9.21. If you buy this business for its dividend, you should have an idea of whether Nacity Property Service GroupLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Nacity Property Service GroupLtd's payout ratio is modest, at just 39% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Nacity Property Service GroupLtd'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 Nacity Property Service GroupLtd 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Nacity Property Service GroupLtd's earnings per share have been growing at 12% a year for the past five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Nacity Property Service GroupLtd has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Has Nacity Property Service GroupLtd got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Nacity Property Service GroupLtd paid out less than half its earnings and a bit over half its free cash flow. Nacity Property Service GroupLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Nacity Property Service GroupLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Nacity Property Service GroupLtd (2 make us uncomfortable!) that deserve your attention before investing in the shares.

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.