Here's What We Like About Nanjing Kangni Mechanical & ElectricalLtd's (SHSE:603111) Upcoming Dividend

Readers hoping to buy Nanjing Kangni Mechanical & Electrical Co.,Ltd (SHSE:603111) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 Nanjing Kangni Mechanical & ElectricalLtd's shares before the 17th of July in order to be eligible for the dividend, which will be paid on the 17th of July.

The company's upcoming dividend is CN¥0.20 a share, following on from the last 12 months, when the company distributed a total of CN¥0.20 per share to shareholders. Calculating the last year's worth of payments shows that Nanjing Kangni Mechanical & ElectricalLtd has a trailing yield of 3.4% on the current share price of CN¥5.82. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Nanjing Kangni Mechanical & ElectricalLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nanjing Kangni Mechanical & ElectricalLtd paid out 52% of its earnings to investors last year, a normal payout level for most businesses. 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 19% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Nanjing Kangni Mechanical & ElectricalLtd'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 Nanjing Kangni Mechanical & ElectricalLtd 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Nanjing Kangni Mechanical & ElectricalLtd has grown its earnings rapidly, up 50% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nanjing Kangni Mechanical & ElectricalLtd has delivered an average of 14% per year annual increase in its dividend, based on the past nine years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Nanjing Kangni Mechanical & ElectricalLtd worth buying for its dividend? Nanjing Kangni Mechanical & ElectricalLtd's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Nanjing Kangni Mechanical & ElectricalLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Nanjing Kangni Mechanical & ElectricalLtd is facing. Case in point: We've spotted 1 warning sign for Nanjing Kangni Mechanical & ElectricalLtd you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com