Dividend Investors: Don't Be Too Quick To Buy Aerospace CH UAV Co.,Ltd (SZSE:002389) For Its Upcoming Dividend

Readers hoping to buy Aerospace CH UAV Co.,Ltd (SZSE:002389) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Aerospace CH UAVLtd investors that purchase the stock on or after the 31st of May will not receive the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be CN¥0.06 per share, and in the last 12 months, the company paid a total of CN¥0.06 per share. Calculating the last year's worth of payments shows that Aerospace CH UAVLtd has a trailing yield of 0.4% on the current share price of CN¥15.35. 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 Aerospace CH UAVLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Aerospace CH UAVLtd

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. Aerospace CH UAVLtd paid out a comfortable 42% of its profit last year. A useful secondary check can be to evaluate whether Aerospace CH UAVLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 256% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While Aerospace CH UAVLtd'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. Cash is king, as they say, and were Aerospace CH UAVLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Aerospace CH UAVLtd's earnings per share have fallen at approximately 12% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Aerospace CH UAVLtd has delivered an average of 9.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

From a dividend perspective, should investors buy or avoid Aerospace CH UAVLtd? Aerospace CH UAVLtd's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Aerospace CH UAVLtd. Case in point: We've spotted 2 warning signs for Aerospace CH UAVLtd 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.

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.