Income Investors Should Know That Puyang Huicheng Electronic Material Co., Ltd. (SZSE:300481) Goes Ex-Dividend Soon

It looks like Puyang Huicheng Electronic Material Co., Ltd. (SZSE:300481) is about to go ex-dividend in the next 3 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. Accordingly, Puyang Huicheng Electronic Material investors that purchase the stock on or after the 27th of December will not receive the dividend, which will be paid on the 27th of December.

The company's next dividend payment will be CN¥0.20 per share, on the back of last year when the company paid a total of CN¥0.40 to shareholders. Based on the last year's worth of payments, Puyang Huicheng Electronic Material stock has a trailing yield of around 2.4% on the current share price of CN¥16.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Puyang Huicheng Electronic Material

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. Puyang Huicheng Electronic Material is paying out an acceptable 64% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Puyang Huicheng Electronic Material generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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?

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Puyang Huicheng Electronic Material, with earnings per share up 8.8% on average 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. Puyang Huicheng Electronic Material has delivered an average of 10% per year annual increase in its dividend, based on the past nine years of dividend payments. 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

Is Puyang Huicheng Electronic Material an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that being said, if dividends aren't your biggest concern with Puyang Huicheng Electronic Material, you should know about the other risks facing this business. For example, we've found 2 warning signs for Puyang Huicheng Electronic Material that we recommend you consider before investing in the business.

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.