It looks like Singatron Electronic (China) Co., Ltd. (SZSE:301329) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Singatron Electronic (China)'s shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be CN¥0.14 per share. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Singatron Electronic (China) can afford its dividend, and if the dividend could grow.

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. It paid out 88% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Singatron Electronic (China)'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 how much of its profit Singatron Electronic (China) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Singatron Electronic (China), with earnings per share up 6.3% on average over the last five years. Decent historical earnings per share growth suggests Singatron Electronic (China) has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

We'd also point out that Singatron Electronic (China) issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

This is Singatron Electronic (China)'s first year of paying a regular dividend, so it doesn't have much of a history yet to compare to.

The Bottom Line

Should investors buy Singatron Electronic (China) for the upcoming dividend? Earnings per share growth has been modest and Singatron Electronic (China) paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall, it's hard to get excited about Singatron Electronic (China) from a dividend perspective.

In light of that, while Singatron Electronic (China) has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Singatron Electronic (China) and you should be aware of this before buying any shares.

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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.