Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Shanghai Kelai Mechatronics Engineering Co.,Ltd. (SHSE:603960) is about to go ex-dividend in just two days. 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. Meaning, you will need to purchase Shanghai Kelai Mechatronics EngineeringLtd's shares before the 12th of June to receive the dividend, which will be paid on the 12th of June.

The company's next dividend payment will be CN¥0.106 per share. Last year, in total, the company distributed CN¥0.11 to shareholders. Based on the last year's worth of payments, Shanghai Kelai Mechatronics EngineeringLtd has a trailing yield of 0.5% on the current stock price of CN¥21.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Shanghai Kelai Mechatronics EngineeringLtd's payout ratio is modest, at just 31% of profit. A useful secondary check can be to evaluate whether Shanghai Kelai Mechatronics EngineeringLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 13% of its free cash flow last year.

It's positive to see that Shanghai Kelai Mechatronics EngineeringLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

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 Shanghai Kelai Mechatronics EngineeringLtd earnings per share are up 5.5% 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shanghai Kelai Mechatronics EngineeringLtd has delivered 13% dividend growth per year on average over the past seven years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Shanghai Kelai Mechatronics EngineeringLtd for the upcoming dividend? Earnings per share have been growing moderately, and Shanghai Kelai Mechatronics EngineeringLtd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. 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 Shanghai Kelai Mechatronics EngineeringLtd is halfway there. Shanghai Kelai Mechatronics EngineeringLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Shanghai Kelai Mechatronics EngineeringLtd? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.