Shenzhen Kaizhong Precision Technology Co., Ltd. (SZSE:002823) Goes Ex-Dividend Soon

Shenzhen Kaizhong Precision Technology Co., Ltd. (SZSE:002823) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Shenzhen Kaizhong Precision Technology's shares on or after the 10th of October, you won't be eligible to receive the dividend, when it is paid on the 10th of October.

The company's upcoming dividend is CN¥0.076336 a share, following on from the last 12 months, when the company distributed a total of CN¥0.08 per share to shareholders. Calculating the last year's worth of payments shows that Shenzhen Kaizhong Precision Technology has a trailing yield of 1.0% on the current share price of CN¥14.90. If you buy this business for its dividend, you should have an idea of whether Shenzhen Kaizhong Precision Technology's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Shenzhen Kaizhong Precision Technology

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 Kaizhong Precision Technology paid out a comfortable 30% of its profit last year. 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. It paid out 90% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Shenzhen Kaizhong Precision Technology'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 Shenzhen Kaizhong Precision Technology 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Shenzhen Kaizhong Precision Technology, with earnings per share up 3.1% on average over the last five years. A high payout ratio of 30% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Shenzhen Kaizhong Precision Technology could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shenzhen Kaizhong Precision Technology's dividend payments per share have declined at 0.6% per year on average over the past six years, which is uninspiring.

To Sum It Up

Is Shenzhen Kaizhong Precision Technology an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Shenzhen Kaizhong Precision Technology paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Shenzhen Kaizhong Precision Technology today.

On that note, you'll want to research what risks Shenzhen Kaizhong Precision Technology is facing. For instance, we've identified 6 warning signs for Shenzhen Kaizhong Precision Technology (3 are significant) you should be aware of.

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