Readers hoping to buy G-bits Network Technology (Xiamen) Co., Ltd. (SHSE:603444) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase G-bits Network Technology (Xiamen)'s shares before the 13th of September to receive the dividend, which will be paid on the 13th of September.

The company's next dividend payment will be CN¥4.50 per share, and in the last 12 months, the company paid a total of CN¥9.00 per share. Calculating the last year's worth of payments shows that G-bits Network Technology (Xiamen) has a trailing yield of 4.5% on the current share price of CN¥199.58. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are 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. G-bits Network Technology (Xiamen) paid out a comfortable 34% of its profit last year. 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. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that G-bits Network Technology (Xiamen)'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?

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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at G-bits Network Technology (Xiamen), with earnings per share up 5.9% on average 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past seven years, G-bits Network Technology (Xiamen) has increased its dividend at approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is G-bits Network Technology (Xiamen) worth buying for its dividend? Earnings per share have been growing moderately, and G-bits Network Technology (Xiamen) 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 G-bits Network Technology (Xiamen) is halfway there. Overall we think this is an attractive combination and worthy of further research.

So while G-bits Network Technology (Xiamen) looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with G-bits Network Technology (Xiamen) and understanding them should be part of your investment process.

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.