Dividend Investors: Don't Be Too Quick To Buy Flying Technology Co., Ltd. (SHSE:603488) For Its Upcoming Dividend

It looks like Flying Technology Co., Ltd. (SHSE:603488) is about to go ex-dividend in the next 2 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Flying Technology's shares before the 8th of July in order to be eligible for the dividend, which will be paid on the 8th of July.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Based on the last year's worth of payments, Flying Technology stock has a trailing yield of around 3.0% on the current share price of CN¥6.68. If you buy this business for its dividend, you should have an idea of whether Flying Technology's dividend is reliable and sustainable. As a result, readers should always check whether Flying Technology has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Flying Technology

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 71% of its free cash flow as dividends, within the usual 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 how much of its profit Flying Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Flying Technology's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Flying Technology has lifted its dividend by approximately 5.8% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Flying Technology? While earnings per share are flat, at least Flying Technology has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Bottom line: Flying Technology has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Flying Technology don't faze you, it's worth being mindful of the risks involved with this business. Be aware that Flying Technology is showing 4 warning signs in our investment analysis, and 1 of those is concerning...

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.

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