Zhejiang Cfmoto Power Co.,Ltd (SHSE:603129) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days 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. In other words, investors can purchase Zhejiang Cfmoto PowerLtd's shares before the 27th of May in order to be eligible for the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be CN¥3.85 per share, and in the last 12 months, the company paid a total of CN¥3.85 per share. Based on the last year's worth of payments, Zhejiang Cfmoto PowerLtd has a trailing yield of 2.1% on the current stock price of CN¥179.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Zhejiang Cfmoto PowerLtd can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Zhejiang Cfmoto PowerLtd paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Zhejiang Cfmoto PowerLtd generated enough free cash flow to afford its dividend. It paid out 9.9% of its free cash flow as dividends last year, which is conservatively low.

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?

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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Zhejiang Cfmoto PowerLtd's earnings have been skyrocketing, up 50% per annum for the past five years. Zhejiang Cfmoto PowerLtd is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last seven years, Zhejiang Cfmoto PowerLtd has lifted its dividend by approximately 44% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Zhejiang Cfmoto PowerLtd worth buying for its dividend? Zhejiang Cfmoto PowerLtd has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Zhejiang Cfmoto PowerLtd, and we would prioritise taking a closer look at it.

Curious what other investors think of Zhejiang Cfmoto PowerLtd? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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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.