ShenZhen YUTO Packaging Technology (SZSE:002831) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ShenZhen YUTO Packaging Technology Co., Ltd. (SZSE:002831) is about to trade 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. In other words, investors can purchase ShenZhen YUTO Packaging Technology's shares before the 29th of May in order to be eligible for the dividend, which will be paid on the 29th of May.

The company's upcoming dividend is CN¥0.620201 a share, following on from the last 12 months, when the company distributed a total of CN¥0.95 per share to shareholders. Looking at the last 12 months of distributions, ShenZhen YUTO Packaging Technology has a trailing yield of approximately 3.6% on its current stock price of CN¥26.02. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether ShenZhen YUTO Packaging Technology has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for ShenZhen YUTO Packaging Technology

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. ShenZhen YUTO Packaging Technology paid out 59% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 32% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. This is why it's a relief to see ShenZhen YUTO Packaging Technology earnings per share are up 8.4% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ShenZhen YUTO Packaging Technology has delivered 23% dividend growth per year on average over the past seven years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy ShenZhen YUTO Packaging Technology for the upcoming dividend? Earnings per share growth has been modest and ShenZhen YUTO Packaging Technology paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, it's hard to get excited about ShenZhen YUTO Packaging Technology from a dividend perspective.

While it's tempting to invest in ShenZhen YUTO Packaging Technology for the dividends alone, you should always be mindful of the risks involved. For example - ShenZhen YUTO Packaging Technology has 1 warning sign we think you should be aware of.

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.