Should You Buy Keli Sensing Technology (Ningbo) Co.,Ltd. (SHSE:603662) For Its Upcoming Dividend?

It looks like Keli Sensing Technology (Ningbo) Co.,Ltd. (SHSE:603662) is about to go ex-dividend in the next four 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. In other words, investors can purchase Keli Sensing Technology (Ningbo)Ltd's shares before the 10th of July in order to be eligible for the dividend, which will be paid on the 10th of July.

The company's next dividend payment will be CN¥0.332 per share, on the back of last year when the company paid a total of CN¥0.33 to shareholders. Calculating the last year's worth of payments shows that Keli Sensing Technology (Ningbo)Ltd has a trailing yield of 1.5% on the current share price of CN¥22.43. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Keli Sensing Technology (Ningbo)Ltd

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. That's why it's good to see Keli Sensing Technology (Ningbo)Ltd paying out a modest 32% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Keli Sensing Technology (Ningbo)Ltd'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Keli Sensing Technology (Ningbo)Ltd, with earnings per share up 9.7% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, four years ago, Keli Sensing Technology (Ningbo)Ltd has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Keli Sensing Technology (Ningbo)Ltd an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest, and it's interesting that Keli Sensing Technology (Ningbo)Ltd is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Keli Sensing Technology (Ningbo)Ltd that we recommend you consider before investing in the business.

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.

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