There's A Lot To Like About Gemac Engineering Machinery's (SZSE:301048) Upcoming CN¥0.048989 Dividend

Gemac Engineering Machinery Co., Ltd. (SZSE:301048) is about to trade ex-dividend in the next 2 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. Meaning, you will need to purchase Gemac Engineering Machinery's shares before the 25th of July to receive the dividend, which will be paid on the 25th of July.

The company's upcoming dividend is CN¥0.048989 a share, following on from the last 12 months, when the company distributed a total of CN¥0.049 per share to shareholders. Calculating the last year's worth of payments shows that Gemac Engineering Machinery has a trailing yield of 0.6% on the current share price of CN¥8.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Gemac Engineering Machinery

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. Gemac Engineering Machinery is paying out just 9.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 11% of its free cash flow last year.

It's positive to see that Gemac Engineering Machinery'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 Gemac Engineering Machinery 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Gemac Engineering Machinery earnings per share are up 2.4% per annum over the last five years. Gemac Engineering Machinery is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Gemac Engineering Machinery's dividend payments per share have declined at 36% per year on average over the past two years, which is uninspiring. Gemac Engineering Machinery is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Gemac Engineering Machinery got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Gemac Engineering Machinery is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Gemac Engineering Machinery is being conservative with its dividend payouts and could still perform reasonably over the long run. Gemac Engineering Machinery looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on Gemac Engineering Machinery's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

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