Zhejiang Wellsun Intelligent Technology Co.,Ltd. (SZSE:300882) stock is about to trade ex-dividend in 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Zhejiang Wellsun Intelligent TechnologyLtd investors that purchase the stock on or after the 27th of May will not receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be CN¥0.05 per share. Last year, in total, the company distributed CN¥0.43 to shareholders. Looking at the last 12 months of distributions, Zhejiang Wellsun Intelligent TechnologyLtd has a trailing yield of approximately 2.9% on its current stock price of CN¥14.93. If you buy this business for its dividend, you should have an idea of whether Zhejiang Wellsun Intelligent TechnologyLtd's dividend is reliable and sustainable. As a result, readers should always check whether Zhejiang Wellsun Intelligent TechnologyLtd has been able to grow its dividends, or if the dividend might be cut.

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. Zhejiang Wellsun Intelligent TechnologyLtd is paying out an acceptable 74% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 106% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Zhejiang Wellsun Intelligent TechnologyLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Zhejiang Wellsun Intelligent TechnologyLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Zhejiang Wellsun Intelligent TechnologyLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Zhejiang Wellsun Intelligent TechnologyLtd 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 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 Zhejiang Wellsun Intelligent TechnologyLtd, with earnings per share up 3.4% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last four years, Zhejiang Wellsun Intelligent TechnologyLtd has lifted its dividend by approximately 27% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Zhejiang Wellsun Intelligent TechnologyLtd for the upcoming dividend? Earnings per share have grown somewhat, although Zhejiang Wellsun Intelligent TechnologyLtd paid out over half its profits and the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Zhejiang Wellsun Intelligent TechnologyLtd and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for Zhejiang Wellsun Intelligent TechnologyLtd you should know about.

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.