Here's What We Like About ZHEJIANG DIBAY ELECTRICLtd's (SHSE:603320) Upcoming Dividend

Readers hoping to buy ZHEJIANG DIBAY ELECTRIC CO.,Ltd. (SHSE:603320) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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 ZHEJIANG DIBAY ELECTRICLtd's shares before the 27th of May in order to be eligible for the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.10 to shareholders. Calculating the last year's worth of payments shows that ZHEJIANG DIBAY ELECTRICLtd has a trailing yield of 0.7% on the current share price of CN¥13.83. If you buy this business for its dividend, you should have an idea of whether ZHEJIANG DIBAY ELECTRICLtd's dividend is reliable and sustainable. So we need to investigate whether ZHEJIANG DIBAY ELECTRICLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for ZHEJIANG DIBAY ELECTRICLtd

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. Fortunately ZHEJIANG DIBAY ELECTRICLtd's payout ratio is modest, at just 25% of profit. A useful secondary check can be to evaluate whether ZHEJIANG DIBAY ELECTRICLtd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.

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 ZHEJIANG DIBAY ELECTRICLtd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at ZHEJIANG DIBAY ELECTRICLtd, with earnings per share up 3.2% on average over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ZHEJIANG DIBAY ELECTRICLtd has seen its dividend decline 3.0% per annum on average over the past six years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is ZHEJIANG DIBAY ELECTRICLtd worth buying for its dividend? Earnings per share have been growing moderately, and ZHEJIANG DIBAY ELECTRICLtd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but ZHEJIANG DIBAY ELECTRICLtd is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

So while ZHEJIANG DIBAY ELECTRICLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for ZHEJIANG DIBAY ELECTRICLtd (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

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.