Is It Smart To Buy Zhejiang Cfmoto Power Co.,Ltd (SHSE:603129) Before It Goes Ex-Dividend?

It looks like Zhejiang Cfmoto Power Co.,Ltd (SHSE:603129) is about to go ex-dividend in the next 3 days. 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Zhejiang Cfmoto PowerLtd investors that purchase the stock on or after the 7th of June will not receive the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥2.08 per share. Last year, in total, the company distributed CN¥2.08 to shareholders. Looking at the last 12 months of distributions, Zhejiang Cfmoto PowerLtd has a trailing yield of approximately 1.4% on its current stock price of CN¥151.11. 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.

View our latest analysis for Zhejiang Cfmoto PowerLtd

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. That's why it's good to see Zhejiang Cfmoto PowerLtd paying out a modest 29% of its earnings. 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. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.

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 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Zhejiang Cfmoto PowerLtd's earnings have been skyrocketing, up 51% per annum for the past five years. Zhejiang Cfmoto PowerLtd 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Zhejiang Cfmoto PowerLtd has lifted its dividend by approximately 38% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Zhejiang Cfmoto PowerLtd for the upcoming dividend? Zhejiang Cfmoto PowerLtd has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Zhejiang Cfmoto PowerLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Zhejiang Cfmoto PowerLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Zhejiang Cfmoto PowerLtd is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.