It looks like Hangzhou AGS MedTech Co., Ltd. (SHSE:688581) is about to go ex-dividend in the next 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase HangzhouS MedTech's shares on or after the 21st of June, you won't be eligible to receive the dividend, when it is paid on the 21st of June.

The company's next dividend payment will be CN¥1.45 per share, on the back of last year when the company paid a total of CN¥1.45 to shareholders. Based on the last year's worth of payments, HangzhouS MedTech stock has a trailing yield of around 1.8% on the current share price of CN¥79.26. If you buy this business for its dividend, you should have an idea of whether HangzhouS MedTech'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.

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. HangzhouS MedTech paid out a comfortable 34% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 25% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that HangzhouS MedTech'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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see HangzhouS MedTech's earnings have been skyrocketing, up 58% per annum for the past five years. HangzhouS MedTech is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

We'd also point out that HangzhouS MedTech issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Unfortunately HangzhouS MedTech has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy HangzhouS MedTech for the upcoming dividend? HangzhouS MedTech has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about HangzhouS MedTech, and we would prioritise taking a closer look at it.

So while HangzhouS MedTech looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, HangzhouS MedTech has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.

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