Here's What We Like About Shenzhen Friendcom Technology Development's (SZSE:300514) Upcoming Dividend

It looks like Shenzhen Friendcom Technology Development Co., Ltd. (SZSE:300514) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. This means that investors who purchase Shenzhen Friendcom Technology Development's shares on or after the 14th of June will not receive the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Last year's total dividend payments show that Shenzhen Friendcom Technology Development has a trailing yield of 1.4% on the current share price of CN¥13.96. If you buy this business for its dividend, you should have an idea of whether Shenzhen Friendcom Technology Development's dividend is reliable and sustainable. As a result, readers should always check whether Shenzhen Friendcom Technology Development has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Shenzhen Friendcom Technology Development

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. Shenzhen Friendcom Technology Development has a low and conservative payout ratio of just 20% of its income after tax. 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. The good news is it paid out just 14% of its free cash flow in the last year.

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 Friendcom Technology Development paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Shenzhen Friendcom Technology Development's earnings have been skyrocketing, up 31% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Shenzhen Friendcom Technology Development looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Shenzhen Friendcom Technology Development has lifted its dividend by approximately 26% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Shenzhen Friendcom Technology Development? Shenzhen Friendcom Technology Development has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

So while Shenzhen Friendcom Technology Development looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Shenzhen Friendcom Technology Development and you should be aware of this before buying any shares.

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.