Just Three Days Till Hangzhou Huawang New Material Technology Co.,Ltd. (SHSE:605377) Will Be Trading Ex-Dividend

It looks like Hangzhou Huawang New Material Technology Co.,Ltd. (SHSE:605377) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Hangzhou Huawang New Material TechnologyLtd's shares on or after the 14th of June, you won't be eligible to receive the dividend, when it is paid on the 14th of June.

The company's upcoming dividend is CN¥1.10 a share, following on from the last 12 months, when the company distributed a total of CN¥1.10 per share to shareholders. Calculating the last year's worth of payments shows that Hangzhou Huawang New Material TechnologyLtd has a trailing yield of 5.1% on the current share price of CN¥21.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hangzhou Huawang New Material TechnologyLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Hangzhou Huawang New Material 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. Hangzhou Huawang New Material TechnologyLtd paid out 60% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Hangzhou Huawang New Material TechnologyLtd generated enough free cash flow to afford its dividend. Hangzhou Huawang New Material TechnologyLtd paid out more free cash flow than it generated - 145%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Hangzhou Huawang New Material TechnologyLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Hangzhou Huawang New Material TechnologyLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Hangzhou Huawang New Material TechnologyLtd's ability to maintain its dividend.

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

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. 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 Hangzhou Huawang New Material TechnologyLtd's earnings have been skyrocketing, up 26% per annum 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hangzhou Huawang New Material TechnologyLtd has delivered an average of 37% per year annual increase in its dividend, based on the past three years of dividend payments. 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

Is Hangzhou Huawang New Material TechnologyLtd an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Hangzhou Huawang New Material TechnologyLtd paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, while it has some positive characteristics, we're not inclined to race out and buy Hangzhou Huawang New Material TechnologyLtd today.

So if you want to do more digging on Hangzhou Huawang New Material TechnologyLtd, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 2 warning signs for Hangzhou Huawang New Material TechnologyLtd (of which 1 is a bit unpleasant!) you should know about.

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.