Here's What We Like About Xiangtan Electrochemical ScientificLtd's (SZSE:002125) Upcoming Dividend

Xiangtan Electrochemical Scientific Co.,Ltd (SZSE:002125) stock is about to trade ex-dividend in 3 days. 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. 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. Therefore, if you purchase Xiangtan Electrochemical ScientificLtd's shares on or after the 7th of June, you won't be eligible to receive the dividend, when it is paid on the 7th of June.

The company's next dividend payment will be CN¥0.168 per share, on the back of last year when the company paid a total of CN¥0.17 to shareholders. Last year's total dividend payments show that Xiangtan Electrochemical ScientificLtd has a trailing yield of 1.5% on the current share price of CN¥11.09. If you buy this business for its dividend, you should have an idea of whether Xiangtan Electrochemical ScientificLtd's dividend is reliable and sustainable. As a result, readers should always check whether Xiangtan Electrochemical ScientificLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Xiangtan Electrochemical ScientificLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Xiangtan Electrochemical ScientificLtd's payout ratio is modest, at just 29% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Xiangtan Electrochemical ScientificLtd'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 Xiangtan Electrochemical ScientificLtd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Xiangtan Electrochemical ScientificLtd's earnings have been skyrocketing, up 35% per annum for the past five years. Xiangtan Electrochemical ScientificLtd is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Xiangtan Electrochemical ScientificLtd has delivered 35% dividend growth per year on average over the past five years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Xiangtan Electrochemical ScientificLtd for the upcoming dividend? It's great that Xiangtan Electrochemical ScientificLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

So while Xiangtan Electrochemical ScientificLtd 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 2 warning signs with Xiangtan Electrochemical ScientificLtd 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.