Weichai Heavy Machinery Co., Ltd. (SZSE:000880) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Weichai Heavy Machinery Co., Ltd. (SZSE:000880) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Weichai Heavy Machinery's shares before the 9th of July to receive the dividend, which will be paid on the 9th of July.

The company's next dividend payment will be CN¥0.18 per share. Last year, in total, the company distributed CN¥0.18 to shareholders. Based on the last year's worth of payments, Weichai Heavy Machinery stock has a trailing yield of around 2.3% on the current share price of CN¥7.73. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Weichai Heavy Machinery

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. Fortunately Weichai Heavy Machinery's payout ratio is modest, at just 35% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 14% of its free cash flow last year.

It's positive to see that Weichai Heavy Machinery'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 how much of its profit Weichai Heavy Machinery paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Weichai Heavy Machinery's earnings have been skyrocketing, up 32% per annum for the past five years. Weichai Heavy Machinery is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

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, Weichai Heavy Machinery has increased its dividend at approximately 27% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Weichai Heavy Machinery for the upcoming dividend? Weichai Heavy Machinery has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past seven years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Weichai Heavy Machinery for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Weichai Heavy Machinery and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.

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