Here's What We Like About Shannon Semiconductor TechnologyLtd's (SZSE:300475) Upcoming Dividend

It looks like Shannon Semiconductor Technology Co.,Ltd. (SZSE:300475) is about to go ex-dividend in the next 4 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Shannon Semiconductor TechnologyLtd's shares before the 10th of July to receive the dividend, which will be paid on the 10th of July.

The company's upcoming dividend is CN¥0.166 a share, following on from the last 12 months, when the company distributed a total of CN¥0.17 per share to shareholders. Based on the last year's worth of payments, Shannon Semiconductor TechnologyLtd stock has a trailing yield of around 0.6% on the current share price of CN¥28.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Shannon Semiconductor TechnologyLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shannon Semiconductor TechnologyLtd

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. Shannon Semiconductor TechnologyLtd paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Dividends consumed 72% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Shannon Semiconductor TechnologyLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Shannon Semiconductor TechnologyLtd has grown its earnings rapidly, up 53% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shannon Semiconductor TechnologyLtd has delivered an average of 16% per year annual increase in its dividend, based on the past eight years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid Shannon Semiconductor TechnologyLtd? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Shannon Semiconductor TechnologyLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Shannon Semiconductor TechnologyLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Shannon Semiconductor TechnologyLtd you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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