Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Wuxi Double Elephant Micro Fibre Material Co.,Ltd (SZSE:002395) is about to trade ex-dividend in the next 3 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Wuxi Double Elephant Micro Fibre MaterialLtd investors that purchase the stock on or after the 5th of July will not receive the dividend, which will be paid on the 5th of July.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.10 to shareholders. Looking at the last 12 months of distributions, Wuxi Double Elephant Micro Fibre MaterialLtd has a trailing yield of approximately 0.7% on its current stock price of CN¥15.03. 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.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Wuxi Double Elephant Micro Fibre MaterialLtd paying out a modest 40% of its earnings. 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.

Click here to see how much of its profit Wuxi Double Elephant Micro Fibre MaterialLtd 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 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 Wuxi Double Elephant Micro Fibre MaterialLtd's earnings have been skyrocketing, up 25% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Wuxi Double Elephant Micro Fibre MaterialLtd has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Wuxi Double Elephant Micro Fibre MaterialLtd? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, Wuxi Double Elephant Micro Fibre MaterialLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Wuxi Double Elephant Micro Fibre MaterialLtd is facing. Our analysis shows 3 warning signs for Wuxi Double Elephant Micro Fibre MaterialLtd and you should be aware of these before buying any shares.

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.

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