Here's What We Like About Chengdu Yunda Technology's (SZSE:300440) 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 Chengdu Yunda Technology Co., Ltd. (SZSE:300440) is about to go ex-dividend in just 3 days. 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 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. In other words, investors can purchase Chengdu Yunda Technology's shares before the 28th of May in order to be eligible for the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be CN¥0.045 per share, and in the last 12 months, the company paid a total of CN¥0.045 per share. Looking at the last 12 months of distributions, Chengdu Yunda Technology has a trailing yield of approximately 0.8% on its current stock price of CN¥5.51. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Chengdu Yunda Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Chengdu Yunda Technology paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 2.9% of its free cash flow as dividends last year, which is conservatively low.

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 Chengdu Yunda Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Chengdu Yunda Technology's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chengdu Yunda Technology has seen its dividend decline 4.0% per annum on average over the past nine years, which is not great to see.

To Sum It Up

Has Chengdu Yunda Technology got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Chengdu Yunda Technology is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Chengdu Yunda Technology is halfway there. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Chengdu Yunda Technology is facing. To that end, you should learn about the 3 warning signs we've spotted with Chengdu Yunda Technology (including 1 which can't be ignored).

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.