Dividend Investors: Don't Be Too Quick To Buy Shenzhen Huaqiang Industry Co., Ltd. (SZSE:000062) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Shenzhen Huaqiang Industry Co., Ltd. (SZSE:000062) is about to go ex-dividend in just 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Shenzhen Huaqiang Industry's shares before the 5th of December in order to receive the dividend, which the company will pay on the 5th of December.

The company's next dividend payment will be CN¥0.25 per share, on the back of last year when the company paid a total of CN¥0.25 to shareholders. Based on the last year's worth of payments, Shenzhen Huaqiang Industry has a trailing yield of 0.9% on the current stock price of CN¥27.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Shenzhen Huaqiang Industry has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Shenzhen Huaqiang Industry

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. Shenzhen Huaqiang Industry is paying out an acceptable 65% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Shenzhen Huaqiang Industry generated enough free cash flow to afford its dividend. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.

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 Huaqiang Industry paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Shenzhen Huaqiang Industry's 14% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Shenzhen Huaqiang Industry has lifted its dividend by approximately 1.9% a year on average.

The Bottom Line

Is Shenzhen Huaqiang Industry an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Bottom line: Shenzhen Huaqiang Industry has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Shenzhen Huaqiang Industry don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 5 warning signs for Shenzhen Huaqiang Industry (3 can't be ignored) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.