Is It Worth Considering Shenzhen Sine Electric Co.,Ltd. (SHSE:688395) For Its Upcoming Dividend?

Shenzhen Sine Electric Co.,Ltd. (SHSE:688395) stock is about to trade ex-dividend in three 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Shenzhen Sine ElectricLtd's shares before the 31st of May to receive the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be CN¥0.20 per share, on the back of last year when the company paid a total of CN¥0.20 to shareholders. Calculating the last year's worth of payments shows that Shenzhen Sine ElectricLtd has a trailing yield of 1.3% on the current share price of CN¥15.62. If you buy this business for its dividend, you should have an idea of whether Shenzhen Sine ElectricLtd's dividend is reliable and sustainable. So we need to investigate whether Shenzhen Sine ElectricLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shenzhen Sine ElectricLtd

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. Fortunately Shenzhen Sine ElectricLtd's payout ratio is modest, at just 42% of profit. A useful secondary check can be to evaluate whether Shenzhen Sine ElectricLtd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.

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 Shenzhen Sine ElectricLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Shenzhen Sine ElectricLtd's earnings are down 4.8% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shenzhen Sine ElectricLtd's dividend payments per share have declined at 12% per year on average over the past two years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Should investors buy Shenzhen Sine ElectricLtd for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Shenzhen Sine ElectricLtd from a dividend perspective.

So while Shenzhen Sine ElectricLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Shenzhen Sine ElectricLtd is showing 2 warning signs in our investment analysis, and 1 of those is significant...

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

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

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.