Why You Might Be Interested In Zhejiang Huada New Materials Co., Ltd. (SHSE:605158) For Its Upcoming Dividend

It looks like Zhejiang Huada New Materials Co., Ltd. (SHSE:605158) is about to go ex-dividend in the next two days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Zhejiang Huada New Materials' shares on or after the 30th of May will not receive the dividend, which will be paid on the 30th of May.

The company's upcoming dividend is CN¥0.20 a share, following on from the last 12 months, when the company distributed a total of CN¥0.20 per share to shareholders. Based on the last year's worth of payments, Zhejiang Huada New Materials stock has a trailing yield of around 2.9% on the current share price of CN¥6.96. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Zhejiang Huada New Materials

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Zhejiang Huada New Materials's payout ratio is modest, at just 31% 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. Fortunately, it paid out only 37% of its free cash flow in the past year.

It's positive to see that Zhejiang Huada New Materials'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 Zhejiang Huada New Materials paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Zhejiang Huada New Materials's earnings per share have risen 15% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past three years, Zhejiang Huada New Materials has increased its dividend at approximately 1.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Is Zhejiang Huada New Materials an attractive dividend stock, or better left on the shelf? Zhejiang Huada New Materials has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past three years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

So while Zhejiang Huada New Materials looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Zhejiang Huada New Materials and understanding them should be part of your investment process.

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.