Ningbo Huaxiang Electronic Co., Ltd. (SZSE:002048) Pays A CN¥0.632 Dividend In Just Three Days

It looks like Ningbo Huaxiang Electronic Co., Ltd. (SZSE:002048) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Ningbo Huaxiang Electronic investors that purchase the stock on or after the 7th of June will not receive the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥0.632 per share. Last year, in total, the company distributed CN¥0.63 to shareholders. Based on the last year's worth of payments, Ningbo Huaxiang Electronic has a trailing yield of 4.3% on the current stock price of CN¥14.54. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Ningbo Huaxiang Electronic has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Ningbo Huaxiang Electronic

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ningbo Huaxiang Electronic paid out a comfortable 49% of its profit last year. A useful secondary check can be to evaluate whether Ningbo Huaxiang Electronic generated enough free cash flow to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 Ningbo Huaxiang Electronic, with earnings per share up 2.3% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ningbo Huaxiang Electronic has delivered 29% dividend growth per year on average over the past 10 years. 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

Should investors buy Ningbo Huaxiang Electronic for the upcoming dividend? Earnings per share have been growing at a steady rate, and Ningbo Huaxiang Electronic paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ningbo Huaxiang Electronic today.

So while Ningbo Huaxiang Electronic looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Ningbo Huaxiang Electronic that we recommend you consider before investing in the business.

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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.