One Day Left Until Western Superconducting Technologies Co., Ltd. (SHSE:688122) Trades Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Western Superconducting Technologies Co., Ltd. (SHSE:688122) is about to trade ex-dividend in the next day or two. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Western Superconducting Technologies' shares on or after the 22nd of January will not receive the dividend, which will be paid on the 22nd of January.

The company's next dividend payment will be CN¥0.10 per share. Last year, in total, the company distributed CN¥0.70 to shareholders. Calculating the last year's worth of payments shows that Western Superconducting Technologies has a trailing yield of 1.6% on the current share price of CN¥43.45. If you buy this business for its dividend, you should have an idea of whether Western Superconducting Technologies's dividend is reliable and sustainable. So we need to investigate whether Western Superconducting Technologies can afford its dividend, and if the dividend could grow.

See our latest analysis for Western Superconducting Technologies

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. Western Superconducting Technologies paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Western Superconducting Technologies generated enough free cash flow to afford its dividend. It paid out an unsustainably high 346% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Western Superconducting Technologies is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Western Superconducting Technologies paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Western Superconducting Technologies'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Western Superconducting Technologies has grown its earnings rapidly, up 37% 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, five years ago, Western Superconducting Technologies has lifted its dividend by approximately 27% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Western Superconducting Technologies worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Western Superconducting Technologies paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So if you want to do more digging on Western Superconducting Technologies, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 2 warning signs with Western Superconducting Technologies and understanding them should be part of your investment process.

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.