Only One Day Left To Cash In On Newonder Special ElectricLtd's (SZSE:301120) Dividend

Newonder Special Electric Co.,Ltd. (SZSE:301120) is about to trade ex-dividend in the next day or two. 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. Accordingly, Newonder Special ElectricLtd investors that purchase the stock on or after the 28th of May will not receive the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be CN¥0.055 per share, on the back of last year when the company paid a total of CN¥0.055 to shareholders. Calculating the last year's worth of payments shows that Newonder Special ElectricLtd has a trailing yield of 0.5% on the current share price of CN¥10.37. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Newonder Special ElectricLtd

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. Newonder Special ElectricLtd paid out a comfortable 39% of its profit last year. 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. Over the last year it paid out 62% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Newonder Special ElectricLtd'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 Newonder Special ElectricLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Newonder Special ElectricLtd's earnings per share have dropped 6.6% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Newonder Special ElectricLtd has seen its dividend decline 36% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Should investors buy Newonder Special ElectricLtd for the upcoming dividend? Earnings per share have fallen significantly, although at least Newonder Special ElectricLtd paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. In summary, it's hard to get excited about Newonder Special ElectricLtd from a dividend perspective.

If you're not too concerned about Newonder Special ElectricLtd's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 2 warning signs for Newonder Special ElectricLtd that we recommend you consider before investing in the business.

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.