Four Days Left Until IFE Elevators Co., Ltd. (SZSE:002774) Trades Ex-Dividend

IFE Elevators Co., Ltd. (SZSE:002774) is about to trade ex-dividend in the next four days. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, IFE Elevators investors that purchase the stock on or after the 15th of May will not receive the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be CN¥0.40 per share, on the back of last year when the company paid a total of CN¥0.40 to shareholders. Calculating the last year's worth of payments shows that IFE Elevators has a trailing yield of 5.4% on the current share price of CN¥7.42. 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.

View our latest analysis for IFE Elevators

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. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether IFE Elevators generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 228% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since IFE Elevators is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

IFE Elevators does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While IFE Elevators's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to IFE Elevators's ability to maintain its dividend.

Click here to see how much of its profit IFE Elevators paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, IFE Elevators's earnings per share have been growing at 18% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, six years ago, IFE Elevators has lifted its dividend by approximately 35% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is IFE Elevators worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note IFE Elevators paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about IFE Elevators from a dividend perspective.

If you want to look further into IFE Elevators, it's worth knowing the risks this business faces. For example, IFE Elevators has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.