Shenzhen INVT Electric Co.,Ltd (SZSE:002334) Looks Interesting, And It's About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shenzhen INVT Electric Co.,Ltd (SZSE:002334) is about to trade ex-dividend in the next day or two. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Meaning, you will need to purchase Shenzhen INVT ElectricLtd's shares before the 23rd of May to receive the dividend, which will be paid on the 23rd of May.

The company's next dividend payment will be CN¥0.06 per share. Last year, in total, the company distributed CN¥0.06 to shareholders. Based on the last year's worth of payments, Shenzhen INVT ElectricLtd stock has a trailing yield of around 0.9% on the current share price of CN¥6.86. If you buy this business for its dividend, you should have an idea of whether Shenzhen INVT ElectricLtd's dividend is reliable and sustainable. As a result, readers should always check whether Shenzhen INVT ElectricLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Shenzhen INVT 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. Shenzhen INVT ElectricLtd is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. The good news is it paid out just 20% of its free cash flow in the last year.

It's positive to see that Shenzhen INVT ElectricLtd'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?

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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Shenzhen INVT ElectricLtd earnings per share are up 6.1% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Shenzhen INVT ElectricLtd has increased its dividend at approximately 1.8% a year on average.

The Bottom Line

Is Shenzhen INVT ElectricLtd worth buying for its dividend? Earnings per share growth has been growing somewhat, and Shenzhen INVT ElectricLtd 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 Shenzhen INVT ElectricLtd is halfway there. There's a lot to like about Shenzhen INVT ElectricLtd, and we would prioritise taking a closer look at it.

While it's tempting to invest in Shenzhen INVT ElectricLtd for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Shenzhen INVT ElectricLtd that you should be aware of before investing in their 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.