State Power Rixin Technology Co., Ltd. (SZSE:301162) Pays A CN¥0.45 Dividend In Just Three Days

Readers hoping to buy State Power Rixin Technology Co., Ltd. (SZSE:301162) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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 State Power Rixin Technology's shares before the 17th of May in order to be eligible for the dividend, which will be paid on the 17th of May.

The company's next dividend payment will be CN¥0.45 per share, on the back of last year when the company paid a total of CN¥0.45 to shareholders. Last year's total dividend payments show that State Power Rixin Technology has a trailing yield of 1.0% on the current share price of CN¥47.07. If you buy this business for its dividend, you should have an idea of whether State Power Rixin Technology's dividend is reliable and sustainable. So we need to investigate whether State Power Rixin Technology can afford its dividend, and if the dividend could grow.

Check out our latest analysis for State Power Rixin Technology

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. State Power Rixin Technology paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether State Power Rixin Technology generated enough free cash flow to afford its dividend. State Power Rixin Technology paid out more free cash flow than it generated - 139%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

State Power Rixin Technology does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While State Power Rixin Technology'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 State Power Rixin Technology's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see State Power Rixin Technology's earnings have been skyrocketing, up 25% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. State Power Rixin Technology has delivered an average of 18% per year annual increase in its dividend, based on the past two years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Has State Power Rixin Technology got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note State Power Rixin Technology paid out a much higher percentage of its free cash flow, which makes us uncomfortable. To summarise, State Power Rixin Technology looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in State Power Rixin Technology as a potential investment, you should definitely consider some of the risks involved with State Power Rixin Technology. To help with this, we've discovered 3 warning signs for State Power Rixin Technology that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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

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.