Here's What We Like About Shenzhen Fortune Trend technology's (SHSE:688318) Upcoming Dividend

Shenzhen Fortune Trend technology Co., Ltd. (SHSE:688318) stock is about to trade ex-dividend in 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 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 Shenzhen Fortune Trend technology's shares before the 18th of October in order to be eligible for the dividend, which will be paid on the 18th of October.

The company's next dividend payment will be CN¥0.11 per share, and in the last 12 months, the company paid a total of CN¥0.57 per share. Looking at the last 12 months of distributions, Shenzhen Fortune Trend technology has a trailing yield of approximately 0.4% on its current stock price of CN¥145.29. If you buy this business for its dividend, you should have an idea of whether Shenzhen Fortune Trend technology's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Shenzhen Fortune Trend technology

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Shenzhen Fortune Trend technology's payout ratio is modest, at just 43% 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. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Shenzhen Fortune Trend technology'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 how much of its profit Shenzhen Fortune Trend technology paid out over the last 12 months.

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. With that in mind, we're encouraged by the steady growth at Shenzhen Fortune Trend technology, with earnings per share up 9.0% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Shenzhen Fortune Trend technology has lifted its dividend by approximately 6.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Shenzhen Fortune Trend technology? Earnings per share have been growing at a steady rate, and Shenzhen Fortune Trend technology paid out less than half its profits and more than half its free cash flow as dividends over the last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Shenzhen Fortune Trend technology is facing. Our analysis shows 2 warning signs for Shenzhen Fortune Trend technology and you should be aware of them before buying any shares.

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.