Just Two Days Till Hicon Network Technology (Shandong) Co.,Ltd. (SZSE:301262) Will Be Trading Ex-Dividend

Hicon Network Technology (Shandong) Co.,Ltd. (SZSE:301262) stock is about to trade ex-dividend in 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Hicon Network Technology (Shandong)Ltd's shares before the 16th of January in order to be eligible for the dividend, which will be paid on the 16th of January.

The company's upcoming dividend is CN¥0.35 a share, following on from the last 12 months, when the company distributed a total of CN¥0.29 per share to shareholders. Calculating the last year's worth of payments shows that Hicon Network Technology (Shandong)Ltd has a trailing yield of 1.9% on the current share price of CN¥22.99. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hicon Network Technology (Shandong)Ltd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hicon Network Technology (Shandong)Ltd is paying out an acceptable 58% of its profit, a common payout level among 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. Hicon Network Technology (Shandong)Ltd paid out more free cash flow than it generated - 116%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Hicon Network Technology (Shandong)Ltd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Hicon Network Technology (Shandong)Ltd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Hicon Network Technology (Shandong)Ltd's ability to maintain its dividend.

Click here to see how much of its profit Hicon Network Technology (Shandong)Ltd paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Hicon Network Technology (Shandong)Ltd earnings per share are up 9.3% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Given that Hicon Network Technology (Shandong)Ltd has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Has Hicon Network Technology (Shandong)Ltd got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although Hicon Network Technology (Shandong)Ltd paid out over half its profits and the dividend was not well covered by free cash flow. Bottom line: Hicon Network Technology (Shandong)Ltd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Keen to explore more data on Hicon Network Technology (Shandong)Ltd's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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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.