There's A Lot To Like About CIMC Vehicles (Group)'s (HKG:1839) Upcoming CN¥0.30 Dividend

CIMC Vehicles (Group) Co., Ltd. (HKG:1839) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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 CIMC Vehicles (Group)'s shares on or after the 30th of May, you won't be eligible to receive the dividend, when it is paid on the 24th of July.

The company's next dividend payment will be CN¥0.30 per share. Last year, in total, the company distributed CN¥0.30 to shareholders. Based on the last year's worth of payments, CIMC Vehicles (Group) stock has a trailing yield of around 5.2% on the current share price of HK$6.41. If you buy this business for its dividend, you should have an idea of whether CIMC Vehicles (Group)'s dividend is reliable and sustainable. So we need to investigate whether CIMC Vehicles (Group) can afford its dividend, and if the dividend could grow.

See our latest analysis for CIMC Vehicles (Group)

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see CIMC Vehicles (Group) paying out a modest 41% of its earnings. A useful secondary check can be to evaluate whether CIMC Vehicles (Group) generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see CIMC Vehicles (Group) earnings per share are up 2.6% per annum over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CIMC Vehicles (Group)'s dividend payments per share have declined at 13% per year on average over the past three years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is CIMC Vehicles (Group) worth buying for its dividend? Earnings per share have been growing moderately, and CIMC Vehicles (Group) is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and CIMC Vehicles (Group) is halfway there. CIMC Vehicles (Group) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - CIMC Vehicles (Group) has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.