It looks like Ningbo Yongxin Optics Co., Ltd. (SHSE:603297) is about to go ex-dividend in the next 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. 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. Thus, you can purchase Ningbo Yongxin Optics' shares before the 31st of May in order to receive the dividend, which the company will pay on the 31st of May.

The company's next dividend payment will be CN¥0.90 per share, on the back of last year when the company paid a total of CN¥0.90 to shareholders. Looking at the last 12 months of distributions, Ningbo Yongxin Optics has a trailing yield of approximately 1.1% on its current stock price of CN¥81.79. If you buy this business for its dividend, you should have an idea of whether Ningbo Yongxin Optics's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Ningbo Yongxin Optics

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. Ningbo Yongxin Optics is paying out an acceptable 51% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Ningbo Yongxin Optics generated enough free cash flow to afford its dividend. It paid out 78% 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 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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Ningbo Yongxin Optics's earnings per share have risen 13% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ningbo Yongxin Optics has delivered 33% dividend growth per year on average over the past three years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid Ningbo Yongxin Optics? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Ningbo Yongxin Optics's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 51% and 78% respectively. To summarise, Ningbo Yongxin Optics looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So while Ningbo Yongxin Optics looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 3 warning signs with Ningbo Yongxin Optics and understanding them should be part of your investment process.

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.