Newland Digital Technology Co.,Ltd. (SZSE:000997) is about to trade 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Newland Digital TechnologyLtd's shares on or after the 30th of July, you won't be eligible to receive the dividend, when it is paid on the 30th of July.

The company's upcoming dividend is CN¥0.22 a share, following on from the last 12 months, when the company distributed a total of CN¥0.44 per share to shareholders. Based on the last year's worth of payments, Newland Digital TechnologyLtd stock has a trailing yield of around 3.5% on the current share price of CN¥12.53. If you buy this business for its dividend, you should have an idea of whether Newland Digital TechnologyLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Newland Digital TechnologyLtd paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Newland Digital TechnologyLtd generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.

It's positive to see that Newland Digital 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Newland Digital TechnologyLtd's earnings per share have been growing at 10% a year for the past five years. Newland Digital TechnologyLtd has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

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, 10 years ago, Newland Digital TechnologyLtd has lifted its dividend by approximately 26% 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

Is Newland Digital TechnologyLtd worth buying for its dividend? We like Newland Digital TechnologyLtd's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Newland Digital TechnologyLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Newland Digital TechnologyLtd for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Newland Digital TechnologyLtd you should be aware of.

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.

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.

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