Read This Before Considering Colorlight Cloud Tech Ltd (SZSE:301391) For Its Upcoming CN¥0.80 Dividend

It looks like Colorlight Cloud Tech Ltd (SZSE:301391) is about to go ex-dividend in the next two days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Colorlight Cloud Tech investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 30th of May.

The company's next dividend payment will be CN¥0.80 per share. Last year, in total, the company distributed CN¥0.60 to shareholders. Based on the last year's worth of payments, Colorlight Cloud Tech has a trailing yield of 0.8% on the current stock price of CN¥78.94. 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.

View our latest analysis for Colorlight Cloud Tech

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. Colorlight Cloud Tech has a low and conservative payout ratio of just 24% of its income after tax. 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're encouraged by the steady growth at Colorlight Cloud Tech, with earnings per share up 4.5% on average over the last three years.

Colorlight Cloud Tech also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Given that Colorlight Cloud Tech has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Is Colorlight Cloud Tech an attractive dividend stock, or better left on the shelf? Colorlight Cloud Tech delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and -76% of its cash flow over the last year, which is a mediocre outcome. Overall, it's hard to get excited about Colorlight Cloud Tech from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Colorlight Cloud Tech, you should know about the other risks facing this business. Be aware that Colorlight Cloud Tech is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.