Be Sure To Check Out Shenzhen Fortune Trend technology Co., Ltd. (SHSE:688318) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shenzhen Fortune Trend technology Co., Ltd. (SHSE:688318) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Shenzhen Fortune Trend technology's shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 14th of June.

The company's upcoming dividend is CN¥0.80 a share, following on from the last 12 months, when the company distributed a total of CN¥0.80 per share to shareholders. Calculating the last year's worth of payments shows that Shenzhen Fortune Trend technology has a trailing yield of 0.7% on the current share price of CN¥117.79. 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 Shenzhen Fortune Trend technology can afford its dividend, and if the dividend could grow.

See our latest analysis for Shenzhen Fortune Trend 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. Shenzhen Fortune Trend technology paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether Shenzhen Fortune Trend technology generated enough free cash flow to afford its dividend. Fortunately, it paid out only 27% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Shenzhen Fortune Trend technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Shenzhen Fortune Trend technology earnings per share are up 9.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shenzhen Fortune Trend technology has delivered 6.9% dividend growth per year on average over the past four years. 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

From a dividend perspective, should investors buy or avoid Shenzhen Fortune Trend technology? Earnings per share growth has been growing somewhat, and Shenzhen Fortune Trend technology 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 Shenzhen Fortune Trend technology is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

Curious about whether Shenzhen Fortune Trend technology has been able to consistently generate growth? Here's a chart 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.