Income Investors Should Know That Zhongyeda Electric Co., Ltd. (SZSE:002441) Goes Ex-Dividend Soon

Zhongyeda Electric Co., Ltd. (SZSE:002441) is about to trade ex-dividend in the next three days. 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 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. Accordingly, Zhongyeda Electric investors that purchase the stock on or after the 26th of June will not receive the dividend, which will be paid on the 26th of June.

The company's next dividend payment will be CN¥0.30 per share. Last year, in total, the company distributed CN¥0.30 to shareholders. Based on the last year's worth of payments, Zhongyeda Electric has a trailing yield of 3.8% on the current stock price of CN¥7.99. If you buy this business for its dividend, you should have an idea of whether Zhongyeda Electric's dividend is reliable and sustainable. As a result, readers should always check whether Zhongyeda Electric has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Zhongyeda Electric

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. Zhongyeda Electric paid out 73% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Zhongyeda Electric generated enough free cash flow to afford its dividend. Fortunately, it paid out only 39% 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 Zhongyeda Electric paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 explains why we're not overly excited about Zhongyeda Electric's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Zhongyeda Electric has delivered 9.1% dividend growth per year on average over the past 10 years.

Final Takeaway

Has Zhongyeda Electric got what it takes to maintain its dividend payments? Earnings per share have been flat and Zhongyeda Electric's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. To summarise, Zhongyeda Electric looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So while Zhongyeda Electric looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Zhongyeda Electric and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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

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