Just Four Days Till Ningbo David Medical Device Co., Ltd. (SZSE:300314) Will Be Trading Ex-Dividend

Readers hoping to buy Ningbo David Medical Device Co., Ltd. (SZSE:300314) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Thus, you can purchase Ningbo David Medical Device's shares before the 19th of June in order to receive the dividend, which the company will pay on the 19th of June.

The company's upcoming dividend is CN¥0.18 a share, following on from the last 12 months, when the company distributed a total of CN¥0.18 per share to shareholders. Last year's total dividend payments show that Ningbo David Medical Device has a trailing yield of 1.6% on the current share price of CN¥10.97. If you buy this business for its dividend, you should have an idea of whether Ningbo David Medical Device's dividend is reliable and sustainable. So we need to investigate whether Ningbo David Medical Device can afford its dividend, and if the dividend could grow.

View our latest analysis for Ningbo David Medical Device

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. Fortunately Ningbo David Medical Device's payout ratio is modest, at just 38% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 94% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Ningbo David Medical Device paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Ningbo David Medical Device to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Ningbo David Medical Device 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. It's encouraging to see Ningbo David Medical Device has grown its earnings rapidly, up 36% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Ningbo David Medical Device has lifted its dividend by approximately 15% 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.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ningbo David Medical Device? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Ningbo David Medical Device's dividend merits.

While it's tempting to invest in Ningbo David Medical Device for the dividends alone, you should always be mindful of the risks involved. For example, Ningbo David Medical Device has 3 warning signs (and 1 which is concerning) we think you should know about.

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.

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