Fibocom Wireless Inc. (SZSE:300638) Passed Our Checks, And It's About To Pay A CN¥0.38 Dividend

Fibocom Wireless Inc. (SZSE:300638) stock is about to trade ex-dividend in 2 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Fibocom Wireless' shares on or after the 29th of April, you won't be eligible to receive the dividend, when it is paid on the 29th of April.

The company's upcoming dividend is CN¥0.38 a share, following on from the last 12 months, when the company distributed a total of CN¥0.38 per share to shareholders. Last year's total dividend payments show that Fibocom Wireless has a trailing yield of 2.4% on the current share price of CN¥15.69. 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! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Fibocom Wireless

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fibocom Wireless paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow 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 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Fibocom Wireless's earnings have been skyrocketing, up 41% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fibocom Wireless has delivered 71% dividend growth per year on average over the past six years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Fibocom Wireless worth buying for its dividend? Fibocom Wireless's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Fibocom Wireless, and we would prioritise taking a closer look at it.

So while Fibocom Wireless looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Fibocom Wireless 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.

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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.