Shandong Weida Machinery Co., Ltd. (SZSE:002026) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Shandong Weida Machinery Co., Ltd. (SZSE:002026) stock is about to trade ex-dividend in 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Shandong Weida Machinery's shares before the 16th of December in order to receive the dividend, which the company will pay on the 16th of December.

The company's upcoming dividend is CN¥0.06 a share, following on from the last 12 months, when the company distributed a total of CN¥0.12 per share to shareholders. Calculating the last year's worth of payments shows that Shandong Weida Machinery has a trailing yield of 1.1% on the current share price of CN¥10.69. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Shandong Weida 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. Shandong Weida Machinery paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Shandong Weida Machinery generated enough free cash flow to afford its dividend. Fortunately, it paid out only 43% of its free cash flow in the past 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 Shandong Weida Machinery 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. This is why it's a relief to see Shandong Weida Machinery earnings per share are up 9.7% per annum 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. Since the start of our data, 10 years ago, Shandong Weida Machinery has lifted its dividend by approximately 9.1% 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 Shandong Weida Machinery? Earnings per share have been growing moderately, and Shandong Weida Machinery is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Shandong Weida Machinery is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Shandong Weida Machinery, and we would prioritise taking a closer look at it.

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

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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.