Ningbo Runhe High-Tech Materials Co., Ltd. (SZSE:300727) Looks Interesting, And It's About To Pay A Dividend

Ningbo Runhe High-Tech Materials Co., Ltd. (SZSE:300727) is about to trade ex-dividend in the next couple of 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Ningbo Runhe High-Tech Materials' shares before the 23rd of May in order to be eligible for the dividend, which will be paid on the 23rd of May.

The company's upcoming dividend is CN¥0.20 a share, following on from the last 12 months, when the company distributed a total of CN¥0.20 per share to shareholders. Based on the last year's worth of payments, Ningbo Runhe High-Tech Materials stock has a trailing yield of around 0.8% on the current share price of CN¥25.03. 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! So we need to investigate whether Ningbo Runhe High-Tech Materials can afford its dividend, and if the dividend could grow.

See our latest analysis for Ningbo Runhe High-Tech Materials

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Ningbo Runhe High-Tech Materials'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. What's good is that dividends were well covered by free cash flow, with the company paying out 25% of its cash flow last year.

It's positive to see that Ningbo Runhe High-Tech Materials'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 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Ningbo Runhe High-Tech Materials earnings per share are up 5.5% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, Ningbo Runhe High-Tech Materials has increased its dividend at approximately 17% 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 Ningbo Runhe High-Tech Materials an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Ningbo Runhe High-Tech Materials is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Ningbo Runhe High-Tech Materials is being conservative with its dividend payouts and could still perform reasonably over the long run. Ningbo Runhe High-Tech Materials looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Ningbo Runhe High-Tech Materials for the dividends alone, you should always be mindful of the risks involved. Be aware that Ningbo Runhe High-Tech Materials is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.