Neway CNC Equipment (Suzhou) Co., Ltd. (SHSE:688697) Stock Goes Ex-Dividend In Just Two Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Neway CNC Equipment (Suzhou) Co., Ltd. (SHSE:688697) is about to go ex-dividend in just 2 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. Thus, you can purchase Neway CNC Equipment (Suzhou)'s shares before the 14th of June in order to receive the dividend, which the company will pay on the 14th of June.

The company's next dividend payment will be CN¥0.60 per share. Last year, in total, the company distributed CN¥0.60 to shareholders. Calculating the last year's worth of payments shows that Neway CNC Equipment (Suzhou) has a trailing yield of 3.6% on the current share price of CN¥16.79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Neway CNC Equipment (Suzhou) can afford its dividend, and if the dividend could grow.

See our latest analysis for Neway CNC Equipment (Suzhou)

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Neway CNC Equipment (Suzhou) paid out 62% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year, it paid out more than three-quarters (85%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Neway CNC Equipment (Suzhou)'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Neway CNC Equipment (Suzhou)'s earnings have been skyrocketing, up 31% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past two years, Neway CNC Equipment (Suzhou) has increased its dividend at approximately 55% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Neway CNC Equipment (Suzhou)? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Neway CNC Equipment (Suzhou)'s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 62% and 85% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Neway CNC Equipment (Suzhou) today.

While it's tempting to invest in Neway CNC Equipment (Suzhou) for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Neway CNC Equipment (Suzhou) that you should be aware of before investing in their shares.

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.