It Might Not Be A Great Idea To Buy Shenzhen iN-Cube Automation Co., Ltd. (SZSE:301312) For Its Next Dividend

Shenzhen iN-Cube Automation Co., Ltd. (SZSE:301312) stock is about to trade ex-dividend in 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Shenzhen iN-Cube Automation's shares before the 30th of May in order to be eligible for the dividend, which will be paid on the 30th of May.

The company's upcoming dividend is CN¥0.50 a share, following on from the last 12 months, when the company distributed a total of CN¥0.50 per share to shareholders. Based on the last year's worth of payments, Shenzhen iN-Cube Automation stock has a trailing yield of around 0.9% on the current share price of CN¥52.94. 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.

Check out our latest analysis for Shenzhen iN-Cube Automation

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. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. 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. Dividends consumed 59% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Shenzhen iN-Cube Automation'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 Shenzhen iN-Cube Automation paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Shenzhen iN-Cube Automation's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 33% a year over the past five years.

Unfortunately Shenzhen iN-Cube Automation has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Is Shenzhen iN-Cube Automation an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Shenzhen iN-Cube Automation don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 4 warning signs we've spotted with Shenzhen iN-Cube Automation (including 1 which is concerning).

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.