Should You Buy Hangzhou IECHO Science&Technology Co., Ltd. (SHSE:688092) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hangzhou IECHO Science&Technology Co., Ltd. (SHSE:688092) is about to trade ex-dividend in the next 2 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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 Hangzhou IECHO Science&Technology's shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be CN¥0.51 per share, on the back of last year when the company paid a total of CN¥0.51 to shareholders. Looking at the last 12 months of distributions, Hangzhou IECHO Science&Technology has a trailing yield of approximately 1.6% on its current stock price of CN¥31.30. 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.

View our latest analysis for Hangzhou IECHO Science&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. That's why it's good to see Hangzhou IECHO Science&Technology paying out a modest 36% of its earnings. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow 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 how much of its profit Hangzhou IECHO Science&Technology 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 Hangzhou IECHO Science&Technology, with earnings per share up 9.4% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hangzhou IECHO Science&Technology has delivered 27% dividend growth per year on average over the past three years. 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

Has Hangzhou IECHO Science&Technology got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Hangzhou IECHO Science&Technology 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 Hangzhou IECHO Science&Technology is halfway there. There's a lot to like about Hangzhou IECHO Science&Technology, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Hangzhou IECHO Science&Technology is facing. Our analysis shows 1 warning sign for Hangzhou IECHO Science&Technology and you should be aware of it before buying any shares.

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.