Read This Before Considering Senba Sensing Technology Co.,Ltd. (SZSE:300701) For Its Upcoming CN¥0.035 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Senba Sensing Technology Co.,Ltd. (SZSE:300701) is about to trade 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Senba Sensing TechnologyLtd's shares on or after the 24th of September, you won't be eligible to receive the dividend, when it is paid on the 24th of September.

The company's next dividend payment will be CN¥0.035 per share. Last year, in total, the company distributed CN¥0.07 to shareholders. Based on the last year's worth of payments, Senba Sensing TechnologyLtd stock has a trailing yield of around 1.0% on the current share price of CN¥7.36. 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.

Check out our latest analysis for Senba Sensing TechnologyLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Senba Sensing TechnologyLtd's payout ratio is modest, at just 45% of profit. 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. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Senba Sensing TechnologyLtd'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 how much of its profit Senba Sensing TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Senba Sensing TechnologyLtd's earnings per share have fallen at approximately 7.1% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Senba Sensing TechnologyLtd has seen its dividend decline 7.4% per annum on average over the past six years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Senba Sensing TechnologyLtd worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Senba Sensing TechnologyLtd from a dividend perspective.

In light of that, while Senba Sensing TechnologyLtd has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 4 warning signs for Senba Sensing TechnologyLtd (1 shouldn'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.