Hangzhou Toka Ink Co.,Ltd. (SHSE:688571) Passed Our Checks, And It's About To Pay A CN¥0.15 Dividend

Hangzhou Toka Ink Co.,Ltd. (SHSE:688571) stock is about to trade ex-dividend in four 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. 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. Therefore, if you purchase Hangzhou Toka InkLtd's shares on or after the 5th of June, you won't be eligible to receive the dividend, when it is paid on the 5th of June.

The company's upcoming dividend is CN¥0.15 a share, following on from the last 12 months, when the company distributed a total of CN¥0.12 per share to shareholders. Looking at the last 12 months of distributions, Hangzhou Toka InkLtd has a trailing yield of approximately 2.0% on its current stock price of CN¥6.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hangzhou Toka InkLtd

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 Toka InkLtd paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether Hangzhou Toka InkLtd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Hangzhou Toka InkLtd'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 Hangzhou Toka InkLtd paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Hangzhou Toka InkLtd earnings per share are up 9.1% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Hangzhou Toka InkLtd has increased its dividend at approximately 13% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Hangzhou Toka InkLtd an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Hangzhou Toka InkLtd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Hangzhou Toka InkLtd is halfway there. Hangzhou Toka InkLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Hangzhou Toka InkLtd has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Hangzhou Toka InkLtd and understanding them should be part of your investment process.

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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.