Dividend Investors: Don't Be Too Quick To Buy Beijing ZZNode Technologies Co., Ltd. (SZSE:003007) For Its Upcoming Dividend

Beijing ZZNode Technologies Co., Ltd. (SZSE:003007) is about to trade ex-dividend in the next four 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 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. Thus, you can purchase Beijing ZZNode Technologies' shares before the 3rd of June in order to receive the dividend, which the company will pay on the 3rd of June.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Based on the last year's worth of payments, Beijing ZZNode Technologies has a trailing yield of 0.7% on the current stock price of CN¥27.17. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Beijing ZZNode Technologies

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. Beijing ZZNode Technologies has a low and conservative payout ratio of just 23% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 204% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Beijing ZZNode Technologies intends to continue funding this dividend, or if it could be forced to cut the payment.

While Beijing ZZNode Technologies's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Beijing ZZNode Technologies's ability to maintain its dividend.

Click here to see how much of its profit Beijing ZZNode Technologies paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Beijing ZZNode Technologies's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Beijing ZZNode Technologies has seen its dividend decline 13% per annum on average over the past three years, which is not great to see.

The Bottom Line

Should investors buy Beijing ZZNode Technologies for the upcoming dividend? It's disappointing to see earnings per share have fallen slightly, even though Beijing ZZNode Technologies is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Beijing ZZNode Technologies don't faze you, it's worth being mindful of the risks involved with this business. We've identified 2 warning signs with Beijing ZZNode Technologies (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

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.