Zhejiang grandwall electric science&technology co.,ltd. (SHSE:603897) Pays A CN¥1.50 Dividend In Just Four Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Zhejiang grandwall electric science&technology co.,ltd. (SHSE:603897) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Zhejiang grandwall electric science&technologyltd's shares on or after the 5th of June will not receive the dividend, which will be paid on the 5th of June.

The company's next dividend payment will be CN¥1.50 per share, on the back of last year when the company paid a total of CN¥2.00 to shareholders. Calculating the last year's worth of payments shows that Zhejiang grandwall electric science&technologyltd has a trailing yield of 9.5% on the current share price of CN¥21.16. 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 Zhejiang grandwall electric science&technologyltd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Zhejiang grandwall electric science&technologyltd

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. Zhejiang grandwall electric science&technologyltd distributed an unsustainably high 171% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Zhejiang grandwall electric science&technologyltd generated enough free cash flow to afford its dividend. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Zhejiang grandwall electric science&technologyltd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Zhejiang grandwall electric science&technologyltd 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 fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Zhejiang grandwall electric science&technologyltd's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang grandwall electric science&technologyltd has delivered an average of 68% per year annual increase in its dividend, based on the past five years of dividend payments.

Final Takeaway

From a dividend perspective, should investors buy or avoid Zhejiang grandwall electric science&technologyltd? Zhejiang grandwall electric science&technologyltd's earnings per share are effectively flat, and it is paying out just 28% of its cash flow but 171% of its income. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Zhejiang grandwall electric science&technologyltd's dividend merits.

With that being said, if dividends aren't your biggest concern with Zhejiang grandwall electric science&technologyltd, you should know about the other risks facing this business. Every company has risks, and we've spotted 1 warning sign for Zhejiang grandwall electric science&technologyltd you should know about.

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.