Don't Race Out To Buy Shenzhen Crastal Technology Co.,Ltd (SZSE:300824) Just Because It's Going Ex-Dividend

Shenzhen Crastal Technology Co.,Ltd (SZSE:300824) is about to trade ex-dividend in the next three days. 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 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. In other words, investors can purchase Shenzhen Crastal TechnologyLtd's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 27th of September.

The company's upcoming dividend is CN¥0.08 a share, following on from the last 12 months, when the company distributed a total of CN¥0.16 per share to shareholders. Based on the last year's worth of payments, Shenzhen Crastal TechnologyLtd has a trailing yield of 2.2% on the current stock price of CN¥7.13. If you buy this business for its dividend, you should have an idea of whether Shenzhen Crastal TechnologyLtd's dividend is reliable and sustainable. So we need to investigate whether Shenzhen Crastal TechnologyLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shenzhen Crastal TechnologyLtd

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. Shenzhen Crastal TechnologyLtd distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Shenzhen Crastal TechnologyLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Shenzhen Crastal TechnologyLtd fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Shenzhen Crastal TechnologyLtd's 6.2% per annum decline in earnings in 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. Shenzhen Crastal TechnologyLtd has seen its dividend decline 12% per annum on average over the past four years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Is Shenzhen Crastal TechnologyLtd an attractive dividend stock, or better left on the shelf? Earnings per share have been shrinking in recent times. What's more, Shenzhen Crastal TechnologyLtd is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Shenzhen Crastal TechnologyLtd don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Shenzhen Crastal TechnologyLtd that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.