Hi-Trend Technology (Shanghai) Co., Ltd. (SHSE:688391) is about to trade ex-dividend in the next three 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. 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. Thus, you can purchase Hi-Trend Technology (Shanghai)'s shares before the 14th of May in order to receive the dividend, which the company will pay on the 14th of May.

The company's upcoming dividend is CN¥0.80 a share, following on from the last 12 months, when the company distributed a total of CN¥0.80 per share to shareholders. Calculating the last year's worth of payments shows that Hi-Trend Technology (Shanghai) has a trailing yield of 1.9% on the current share price of CN¥42.64. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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. Hi-Trend Technology (Shanghai) paid out 57% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Hi-Trend Technology (Shanghai) generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 Hi-Trend Technology (Shanghai) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Hi-Trend Technology (Shanghai)'s earnings per share have risen 18% per annum over the last 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.

Unfortunately Hi-Trend Technology (Shanghai) has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Is Hi-Trend Technology (Shanghai) an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Hi-Trend Technology (Shanghai) is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Hi-Trend Technology (Shanghai) is facing. In terms of investment risks, we've identified 1 warning sign with Hi-Trend Technology (Shanghai) and understanding them should be part of your investment process.

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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.