There's A Lot To Like About Shanghai Kelai Mechatronics EngineeringLtd's (SHSE:603960) Upcoming CN¥0.106 Dividend

It looks like Shanghai Kelai Mechatronics Engineering Co.,Ltd. (SHSE:603960) is about to go ex-dividend in the next 2 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. Meaning, you will need to purchase Shanghai Kelai Mechatronics EngineeringLtd's shares before the 12th of June to receive the dividend, which will be paid on the 12th of June.

The company's next dividend payment will be CN¥0.106 per share, on the back of last year when the company paid a total of CN¥0.11 to shareholders. Calculating the last year's worth of payments shows that Shanghai Kelai Mechatronics EngineeringLtd has a trailing yield of 0.5% on the current share price of CN¥21.60. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Shanghai Kelai Mechatronics EngineeringLtd

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. Fortunately Shanghai Kelai Mechatronics EngineeringLtd's payout ratio is modest, at just 31% of profit. 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. The good news is it paid out just 13% of its free cash flow in the last year.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Shanghai Kelai Mechatronics EngineeringLtd, with earnings per share up 5.5% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past seven years, Shanghai Kelai Mechatronics EngineeringLtd has increased its dividend at approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Shanghai Kelai Mechatronics EngineeringLtd? Earnings per share growth has been growing somewhat, and Shanghai Kelai Mechatronics EngineeringLtd is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Shanghai Kelai Mechatronics EngineeringLtd is halfway there. There's a lot to like about Shanghai Kelai Mechatronics EngineeringLtd, and we would prioritise taking a closer look at it.

Wondering what the future holds for Shanghai Kelai Mechatronics EngineeringLtd? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.