It Might Not Be A Great Idea To Buy Suzhou Sunmun Technology Co., Ltd. (SZSE:300522) For Its Next Dividend

Readers hoping to buy Suzhou Sunmun Technology Co., Ltd. (SZSE:300522) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Suzhou Sunmun Technology's shares before the 29th of May in order to receive the dividend, which the company will pay on the 29th of May.

The company's next dividend payment will be CN¥0.05 per share, on the back of last year when the company paid a total of CN¥0.05 to shareholders. Calculating the last year's worth of payments shows that Suzhou Sunmun Technology has a trailing yield of 0.4% on the current share price of CN¥11.90. 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 investigate whether Suzhou Sunmun Technology can afford its dividend, and if the dividend could grow.

See our latest analysis for Suzhou Sunmun 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. Suzhou Sunmun Technology paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies. 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. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Suzhou Sunmun Technology'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 Suzhou Sunmun Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Suzhou Sunmun Technology's 19% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Suzhou Sunmun Technology's dividend payments per share have declined at 3.0% per year on average over the past seven years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

From a dividend perspective, should investors buy or avoid Suzhou Sunmun Technology? While earnings per share are shrinking, it's encouraging to see that at least Suzhou Sunmun Technology's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Suzhou Sunmun Technology.

Want to learn more about Suzhou Sunmun Technology's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.