Income Investors Should Know That Changchun FAWAY Automobile Components Co.,Ltd (SHSE:600742) Goes Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Changchun FAWAY Automobile Components Co.,Ltd (SHSE:600742) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase Changchun FAWAY Automobile ComponentsLtd's shares before the 17th of January in order to be eligible for the dividend, which will be paid on the 17th of January.

The company's next dividend payment will be CN¥0.10 per share, and in the last 12 months, the company paid a total of CN¥0.25 per share. Looking at the last 12 months of distributions, Changchun FAWAY Automobile ComponentsLtd has a trailing yield of approximately 2.9% on its current stock price of CN¥8.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Changchun FAWAY Automobile ComponentsLtd

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. That's why it's good to see Changchun FAWAY Automobile ComponentsLtd paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Changchun FAWAY Automobile ComponentsLtd generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

It's positive to see that Changchun FAWAY Automobile ComponentsLtd'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 Changchun FAWAY Automobile ComponentsLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Changchun FAWAY Automobile ComponentsLtd's earnings are down 2.6% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Changchun FAWAY Automobile ComponentsLtd has delivered 8.3% dividend growth per year on average over the past 10 years.

To Sum It Up

Is Changchun FAWAY Automobile ComponentsLtd worth buying for its dividend? Changchun FAWAY Automobile ComponentsLtd has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, Changchun FAWAY Automobile ComponentsLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Changchun FAWAY Automobile ComponentsLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Changchun FAWAY Automobile ComponentsLtd is showing 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.