Readers hoping to buy Qingdao Huijintong Power Equipment Co.,Ltd. (SHSE:603577) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Qingdao Huijintong Power EquipmentLtd investors that purchase the stock on or after the 30th of September will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be CN¥0.05 per share. Last year, in total, the company distributed CN¥0.10 to shareholders. Looking at the last 12 months of distributions, Qingdao Huijintong Power EquipmentLtd has a trailing yield of approximately 1.4% on its current stock price of CN¥7.19. 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 check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Qingdao Huijintong Power EquipmentLtd paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Qingdao Huijintong Power EquipmentLtd generated enough free cash flow to afford its dividend. Qingdao Huijintong Power EquipmentLtd paid out more free cash flow than it generated - 138%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Qingdao Huijintong Power EquipmentLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Qingdao Huijintong Power EquipmentLtd's ability to maintain its dividend.

Click here to see how much of its profit Qingdao Huijintong Power EquipmentLtd paid out over the last 12 months.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Qingdao Huijintong Power EquipmentLtd, with earnings per share up 4.9% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last seven years, Qingdao Huijintong Power EquipmentLtd has lifted its dividend by approximately 3.5% 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.

The Bottom Line

Is Qingdao Huijintong Power EquipmentLtd worth buying for its dividend? Qingdao Huijintong Power EquipmentLtd has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

So if you want to do more digging on Qingdao Huijintong Power EquipmentLtd, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 4 warning signs for Qingdao Huijintong Power EquipmentLtd (2 are a bit concerning!) that deserve your attention before investing in the 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.