We Wouldn't Be Too Quick To Buy Hubei W-olf Photoelectric Technology Co., Ltd. (SZSE:002962) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hubei W-olf Photoelectric Technology Co., Ltd. (SZSE:002962) is about to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Thus, you can purchase Hubei W-olf Photoelectric Technology's shares before the 7th of June in order to receive the dividend, which the company will pay on the 7th of June.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Looking at the last 12 months of distributions, Hubei W-olf Photoelectric Technology has a trailing yield of approximately 1.2% on its current stock price of CN¥16.57. 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 investigate whether Hubei W-olf Photoelectric Technology can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Hubei W-olf Photoelectric Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.

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 Hubei W-olf Photoelectric Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Hubei W-olf Photoelectric Technology's earnings per share have fallen at approximately 23% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Hubei W-olf Photoelectric Technology has lifted its dividend by approximately 9.5% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Hubei W-olf Photoelectric Technology is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

From a dividend perspective, should investors buy or avoid Hubei W-olf Photoelectric Technology? While earnings per share are shrinking, it's encouraging to see that at least Hubei W-olf Photoelectric Technology's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think Hubei W-olf Photoelectric Technology is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Hubei W-olf Photoelectric Technology as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 4 warning signs we've spotted with Hubei W-olf Photoelectric Technology (including 1 which can't be ignored).

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.