Two Days Left To Buy Espressif Systems (Shanghai) Co., Ltd. (SHSE:688018) Before The Ex-Dividend Date

It looks like Espressif Systems (Shanghai) Co., Ltd. (SHSE:688018) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Espressif Systems (Shanghai)'s shares before the 16th of May in order to be eligible for the dividend, which will be paid on the 16th of May.

The company's next dividend payment will be CN¥1.00 per share. Last year, in total, the company distributed CN¥1.00 to shareholders. Based on the last year's worth of payments, Espressif Systems (Shanghai) has a trailing yield of 0.9% on the current stock price of CN¥107.90. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Espressif Systems (Shanghai)

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Espressif Systems (Shanghai) is paying out an acceptable 50% of its profit, a common payout level among most companies.

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 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 encouraged by the steady growth at Espressif Systems (Shanghai), with earnings per share up 5.4% on average over the last five years. Decent historical earnings per share growth suggests Espressif Systems (Shanghai) has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, four years ago, Espressif Systems (Shanghai) has lifted its dividend by approximately 3.4% 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.

The Bottom Line

Is Espressif Systems (Shanghai) an attractive dividend stock, or better left on the shelf? Espressif Systems (Shanghai) has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. We think this is a pretty attractive combination, and would be interested in investigating Espressif Systems (Shanghai) more closely.

In light of that, while Espressif Systems (Shanghai) has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for Espressif Systems (Shanghai) you should know about.

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.