Should Income Investors Look At Shenzhen Vital New Material Co., Ltd. (SZSE:301319) Before Its Ex-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 Shenzhen Vital New Material Co., Ltd. (SZSE:301319) is about to go ex-dividend in just 3 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. 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. This means that investors who purchase Shenzhen Vital New Material's shares on or after the 28th of May will not receive the dividend, which will be paid on the 28th of May.

The company's upcoming dividend is CN¥1.40 a share, following on from the last 12 months, when the company distributed a total of CN¥1.40 per share to shareholders. Looking at the last 12 months of distributions, Shenzhen Vital New Material has a trailing yield of approximately 3.0% on its current stock price of CN¥47.08. If you buy this business for its dividend, you should have an idea of whether Shenzhen Vital New Material's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Shenzhen Vital New Material

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 85% 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. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Shenzhen Vital New Material'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 Vital New Material paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Shenzhen Vital New Material's earnings per share have been growing at 12% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Given that Shenzhen Vital New Material has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Has Shenzhen Vital New Material got what it takes to maintain its dividend payments? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Shenzhen Vital New Material's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 85% and 82% respectively. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

In light of that, while Shenzhen Vital New Material has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Shenzhen Vital New Material has 1 warning sign we think 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.