Shanghai Hi-Tech Control System Co., Ltd (SZSE:002184) Passed Our Checks, And It's About To Pay A CN¥0.10 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shanghai Hi-Tech Control System Co., Ltd (SZSE:002184) is about to trade ex-dividend in the next two days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. This means that investors who purchase Shanghai Hi-Tech Control System's shares on or after the 2nd of August will not receive the dividend, which will be paid on the 2nd of August.

The company's next dividend payment will be CN¥0.10 per share, and in the last 12 months, the company paid a total of CN¥0.10 per share. Looking at the last 12 months of distributions, Shanghai Hi-Tech Control System has a trailing yield of approximately 1.2% on its current stock price of CN¥8.30. 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.

View our latest analysis for Shanghai Hi-Tech Control System

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. Shanghai Hi-Tech Control System paid out a comfortable 41% of its profit last year. A useful secondary check can be to evaluate whether Shanghai Hi-Tech Control System generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.

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 Shanghai Hi-Tech Control System 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. It's encouraging to see Shanghai Hi-Tech Control System has grown its earnings rapidly, up 34% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shanghai Hi-Tech Control System has delivered 3.9% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Shanghai Hi-Tech Control System is keeping back more of its profits to grow the business.

Final Takeaway

Is Shanghai Hi-Tech Control System worth buying for its dividend? Shanghai Hi-Tech Control System has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Shanghai Hi-Tech Control System has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Shanghai Hi-Tech Control System that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com