Shannon Semiconductor Technology Co.,Ltd. (SZSE:300475) 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Shannon Semiconductor TechnologyLtd's shares before the 10th of July to receive the dividend, which will be paid on the 10th of July.

The company's next dividend payment will be CN¥0.166 per share, and in the last 12 months, the company paid a total of CN¥0.17 per share. Based on the last year's worth of payments, Shannon Semiconductor TechnologyLtd has a trailing yield of 0.6% on the current stock price of CN¥28.48. 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.

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. Shannon Semiconductor TechnologyLtd paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Shannon Semiconductor TechnologyLtd generated enough free cash flow to afford its dividend. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Shannon Semiconductor TechnologyLtd'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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Shannon Semiconductor TechnologyLtd has grown its earnings rapidly, up 53% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, Shannon Semiconductor TechnologyLtd has increased its dividend at approximately 16% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Shannon Semiconductor TechnologyLtd an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Shannon Semiconductor TechnologyLtd has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Shannon Semiconductor TechnologyLtd that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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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