Hangzhou Zhongheng Electric Co., Ltd (SZSE:002364) Pays A CN¥0.05 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hangzhou Zhongheng Electric Co., Ltd (SZSE:002364) is about to trade ex-dividend in the next 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Hangzhou Zhongheng Electric's shares on or after the 28th of June will not receive the dividend, which will be paid on the 28th of June.

The company's upcoming dividend is CN¥0.05 a share, following on from the last 12 months, when the company distributed a total of CN¥0.05 per share to shareholders. Based on the last year's worth of payments, Hangzhou Zhongheng Electric has a trailing yield of 0.9% on the current stock price of CN¥5.53. If you buy this business for its dividend, you should have an idea of whether Hangzhou Zhongheng Electric's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Hangzhou Zhongheng Electric

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hangzhou Zhongheng Electric is paying out an acceptable 62% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 0.4% of its free cash flow last year.

It's positive to see that Hangzhou Zhongheng Electric'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 Hangzhou Zhongheng Electric 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Hangzhou Zhongheng Electric's earnings per share have dropped 11% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hangzhou Zhongheng Electric's dividend payments are effectively flat on where they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

To Sum It Up

Is Hangzhou Zhongheng Electric an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Hangzhou Zhongheng Electric from a dividend perspective.

If you're not too concerned about Hangzhou Zhongheng Electric's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 2 warning signs for Hangzhou Zhongheng Electric that we strongly recommend you have a look at before investing in the company.

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.

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