It looks like Hangzhou Greatstar Industrial Co., Ltd (SZSE:002444) is about to go ex-dividend in the next 2 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. 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. Therefore, if you purchase Hangzhou Greatstar Industrial's shares on or after the 5th of December, you won't be eligible to receive the dividend, when it is paid on the 5th of December.

The company's next dividend payment will be CN¥0.25 per share. Last year, in total, the company distributed CN¥0.27 to shareholders. Looking at the last 12 months of distributions, Hangzhou Greatstar Industrial has a trailing yield of approximately 1.0% on its current stock price of CN¥27.39. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Hangzhou Greatstar Industrial is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Hangzhou Greatstar Industrial'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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Hangzhou Greatstar Industrial's earnings have been skyrocketing, up 22% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hangzhou Greatstar Industrial has delivered 11% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Hangzhou Greatstar Industrial? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

So while Hangzhou Greatstar Industrial looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Hangzhou Greatstar Industrial has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.