Here's What We Like About Zhejiang Dahua Technology's (SZSE:002236) Upcoming Dividend

Readers hoping to buy Zhejiang Dahua Technology Co., Ltd. (SZSE:002236) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Zhejiang Dahua Technology's shares before the 20th of September to receive the dividend, which will be paid on the 20th of September.

The company's next dividend payment will be CN¥0.184 per share. Last year, in total, the company distributed CN¥0.76 to shareholders. Based on the last year's worth of payments, Zhejiang Dahua Technology stock has a trailing yield of around 5.7% on the current share price of CN¥13.52. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Zhejiang Dahua Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Zhejiang Dahua Technology's payout ratio is modest, at just 39% of profit. 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 more than three-quarters (90%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Zhejiang Dahua Technology's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Zhejiang Dahua Technology's earnings have been skyrocketing, up 20% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang Dahua Technology has delivered 35% dividend growth per year on average over the past 10 years. 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

Is Zhejiang Dahua Technology an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Zhejiang Dahua Technology looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Zhejiang Dahua Technology for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for Zhejiang Dahua Technology (1 can't be ignored) you should be aware of.

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.