Here's Why We're Wary Of Buying Zhejiang Runyang New Material Technology's (SZSE:300920) For Its Upcoming Dividend

Zhejiang Runyang New Material Technology Co., Ltd. (SZSE:300920) is about to trade ex-dividend in the next three 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Zhejiang Runyang New Material Technology's shares before the 30th of May in order to be eligible for the dividend, which will be paid on the 30th of May.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Last year's total dividend payments show that Zhejiang Runyang New Material Technology has a trailing yield of 1.3% on the current share price of CN¥15.77. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Zhejiang Runyang New Material Technology has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Zhejiang Runyang New Material Technology

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. Fortunately Zhejiang Runyang New Material Technology's payout ratio is modest, at just 34% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend.

Click here to see how much of its profit Zhejiang Runyang New Material Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Zhejiang Runyang New Material Technology's 14% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang Runyang New Material Technology's dividend payments per share have declined at 21% per year on average over the past three years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Zhejiang Runyang New Material Technology? Zhejiang Runyang New Material Technology's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Zhejiang Runyang New Material Technology.

So if you're still interested in Zhejiang Runyang New Material Technology despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 3 warning signs with Zhejiang Runyang New Material Technology (at least 2 which are potentially serious), and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.