It looks like Cofoe Medical Technology Co.,Ltd. (SZSE:301087) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Thus, you can purchase Cofoe Medical TechnologyLtd's shares before the 11th of October in order to receive the dividend, which the company will pay on the 11th of October.

The company's upcoming dividend is CN¥0.60 a share, following on from the last 12 months, when the company distributed a total of CN¥1.20 per share to shareholders. Calculating the last year's worth of payments shows that Cofoe Medical TechnologyLtd has a trailing yield of 3.0% on the current share price of CN¥39.97. If you buy this business for its dividend, you should have an idea of whether Cofoe Medical TechnologyLtd's dividend is reliable and sustainable. So we need to investigate whether Cofoe Medical TechnologyLtd can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cofoe Medical TechnologyLtd paid out 152% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Over the last year, it paid out dividends equivalent to 245% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Cofoe Medical TechnologyLtd intends to continue funding this dividend, or if it could be forced to cut the payment.

Cofoe Medical TechnologyLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Cofoe Medical TechnologyLtd's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Cofoe Medical TechnologyLtd 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. Fortunately for readers, Cofoe Medical TechnologyLtd's earnings per share have been growing at 14% a year for the past five years. It's great to see earnings per share growing rapidly, but we're disturbed to see the company paid out 152% of its earnings last year. We're wary of fast-growing companies flaming out by over-committing themselves financially, and consider this a yellow flag.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Cofoe Medical TechnologyLtd has seen its dividend decline 1.3% per annum on average over the past two years, which is not great to see.

To Sum It Up

Is Cofoe Medical TechnologyLtd worth buying for its dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not that we think Cofoe Medical TechnologyLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Cofoe Medical TechnologyLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for Cofoe Medical TechnologyLtd that we recommend you consider before investing in the business.

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.