Here's Why We're Wary Of Buying Guangdong AVCiT Technology Holding's (SZSE:001229) For Its Upcoming Dividend

Guangdong AVCiT Technology Holding Co., Ltd. (SZSE:001229) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Guangdong AVCiT Technology Holding's shares on or after the 28th of June, you won't be eligible to receive the dividend, when it is paid on the 28th of June.

The company's next dividend payment will be CN¥0.60 per share. Last year, in total, the company distributed CN¥0.60 to shareholders. Looking at the last 12 months of distributions, Guangdong AVCiT Technology Holding has a trailing yield of approximately 2.0% on its current stock price of CN¥30.63. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Guangdong AVCiT Technology Holding has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Guangdong AVCiT Technology Holding

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Guangdong AVCiT Technology Holding is paying out an acceptable 71% of its profit, a common payout level among most companies. 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. Dividends consumed 75% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 Guangdong AVCiT Technology Holding paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Guangdong AVCiT Technology Holding's earnings per share have dropped 5.5% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Given that Guangdong AVCiT Technology Holding has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Has Guangdong AVCiT Technology Holding got what it takes to maintain its dividend payments? 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. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Guangdong AVCiT Technology Holding as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Guangdong AVCiT Technology Holding that we recommend you consider before investing in the business.

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.

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