Is It Smart To Buy Wuhan Zhongyuan Huadian Science & Technology Co.,Ltd. (SZSE:300018) Before It Goes Ex-Dividend?

Readers hoping to buy Wuhan Zhongyuan Huadian Science & Technology Co.,Ltd. (SZSE:300018) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Wuhan Zhongyuan Huadian Science & TechnologyLtd'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¥0.05 per share, on the back of last year when the company paid a total of CN¥0.05 to shareholders. Based on the last year's worth of payments, Wuhan Zhongyuan Huadian Science & TechnologyLtd has a trailing yield of 1.0% on the current stock price of CN¥4.88. If you buy this business for its dividend, you should have an idea of whether Wuhan Zhongyuan Huadian Science & TechnologyLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Wuhan Zhongyuan Huadian Science & TechnologyLtd

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. Wuhan Zhongyuan Huadian Science & TechnologyLtd paid out a comfortable 42% of its profit last year. A useful secondary check can be to evaluate whether Wuhan Zhongyuan Huadian Science & TechnologyLtd generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last 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 Wuhan Zhongyuan Huadian Science & TechnologyLtd 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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Wuhan Zhongyuan Huadian Science & TechnologyLtd has grown its earnings rapidly, up 63% a year for the past five years. Wuhan Zhongyuan Huadian Science & TechnologyLtd is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Wuhan Zhongyuan Huadian Science & TechnologyLtd's dividend payments are effectively flat on where they were 10 years ago.

Final Takeaway

Is Wuhan Zhongyuan Huadian Science & TechnologyLtd an attractive dividend stock, or better left on the shelf? It's great that Wuhan Zhongyuan Huadian Science & TechnologyLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Wuhan Zhongyuan Huadian Science & TechnologyLtd, and we would prioritise taking a closer look at it.

So while Wuhan Zhongyuan Huadian Science & TechnologyLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Wuhan Zhongyuan Huadian Science & TechnologyLtd and you should be aware of it before buying any shares.

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.