HHC Changzhou Corp. (SZSE:301061) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, HHC Changzhou investors that purchase the stock on or after the 9th of September will not receive the dividend, which will be paid on the 9th of September.

The upcoming dividend for HHC Changzhou will put a total of CN¥0.50 per share in shareholders' pockets. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for HHC Changzhou

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately HHC Changzhou's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether HHC Changzhou generated enough free cash flow to afford its dividend. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.

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 how much of its profit HHC Changzhou paid out over the last 12 months.

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 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, HHC Changzhou's earnings per share have been growing at 16% a year for the past five years. HHC Changzhou has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

We'd also point out that HHC Changzhou issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

This is HHC Changzhou's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

To Sum It Up

Has HHC Changzhou got what it takes to maintain its dividend payments? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about HHC Changzhou, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks HHC Changzhou is facing. Be aware that HHC Changzhou is showing 2 warning signs in our investment analysis, and 1 of those is significant...

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.