Shijiazhuang Kelin Electric (SHSE:603050) Could Be A Buy For Its Upcoming Dividend

Shijiazhuang Kelin Electric Co., Ltd. (SHSE:603050) stock is about to trade ex-dividend in 3 days. 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 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. In other words, investors can purchase Shijiazhuang Kelin Electric's shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥0.40 per share, on the back of last year when the company paid a total of CN¥0.40 to shareholders. Based on the last year's worth of payments, Shijiazhuang Kelin Electric stock has a trailing yield of around 1.3% on the current share price of CN¥31.54. 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 investigate whether Shijiazhuang Kelin Electric can afford its dividend, and if the dividend could grow.

See our latest analysis for Shijiazhuang Kelin Electric

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 Shijiazhuang Kelin Electric paying out a modest 28% of its earnings. A useful secondary check can be to evaluate whether Shijiazhuang Kelin Electric generated enough free cash flow to afford its dividend. Fortunately, it paid out only 34% of its free cash flow in the past year.

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 how much of its profit Shijiazhuang Kelin Electric 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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Shijiazhuang Kelin Electric's earnings have been skyrocketing, up 30% per annum for the past five years. Shijiazhuang Kelin Electric is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past seven years, Shijiazhuang Kelin Electric has increased its dividend at approximately 4.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Has Shijiazhuang Kelin Electric got what it takes to maintain its dividend payments? It's great that Shijiazhuang Kelin Electric is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Shijiazhuang Kelin Electric, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Shijiazhuang Kelin Electric is facing. Case in point: We've spotted 3 warning signs for Shijiazhuang Kelin Electric you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.