Here's Why We're Wary Of Buying Kunshan TopA Intelligent EquipmentLtd's (SZSE:300836) For Its Upcoming 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 Kunshan TopA Intelligent Equipment Co.,Ltd (SZSE:300836) is about to go ex-dividend in just day or two. 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. This means that investors who purchase Kunshan TopA Intelligent EquipmentLtd's shares on or after the 30th of September will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be CN¥0.158 per share, on the back of last year when the company paid a total of CN¥0.32 to shareholders. Looking at the last 12 months of distributions, Kunshan TopA Intelligent EquipmentLtd has a trailing yield of approximately 0.9% on its current stock price of CN¥37.04. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Kunshan TopA Intelligent EquipmentLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Kunshan TopA Intelligent EquipmentLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kunshan TopA Intelligent EquipmentLtd lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Kunshan TopA Intelligent EquipmentLtd didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 3.3% of its cash flow last year.

Click here to see how much of its profit Kunshan TopA Intelligent EquipmentLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Kunshan TopA Intelligent EquipmentLtd reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past two years, Kunshan TopA Intelligent EquipmentLtd has increased its dividend at approximately 16% a year on average.

We update our analysis on Kunshan TopA Intelligent EquipmentLtd every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Has Kunshan TopA Intelligent EquipmentLtd got what it takes to maintain its dividend payments? It's hard to get used to Kunshan TopA Intelligent EquipmentLtd paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Kunshan TopA Intelligent EquipmentLtd and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 3 warning signs for Kunshan TopA Intelligent EquipmentLtd (1 is a bit concerning!) that deserve your attention before investing in the shares.

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