ZHEJIANG DIBAY ELECTRIC CO.,Ltd. (SHSE:603320) stock is about to trade ex-dividend in 2 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase ZHEJIANG DIBAY ELECTRICLtd's shares on or after the 26th of May, you won't be eligible to receive the dividend, when it is paid on the 26th of May.

The company's next dividend payment will be CN¥0.14 per share, and in the last 12 months, the company paid a total of CN¥0.14 per share. Last year's total dividend payments show that ZHEJIANG DIBAY ELECTRICLtd has a trailing yield of 0.8% on the current share price of CN¥16.70. If you buy this business for its dividend, you should have an idea of whether ZHEJIANG DIBAY ELECTRICLtd's dividend is reliable and sustainable. As a result, readers should always check whether ZHEJIANG DIBAY ELECTRICLtd has been able to grow its dividends, or if the dividend might be cut.

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. ZHEJIANG DIBAY ELECTRICLtd is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether ZHEJIANG DIBAY ELECTRICLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 20% of its free cash flow last year.

It's positive to see that ZHEJIANG DIBAY ELECTRICLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit ZHEJIANG DIBAY ELECTRICLtd paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see ZHEJIANG DIBAY ELECTRICLtd earnings per share are up 9.5% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ZHEJIANG DIBAY ELECTRICLtd has delivered an average of 2.2% per year annual increase in its dividend, based on the past seven years of dividend payments. 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

Has ZHEJIANG DIBAY ELECTRICLtd got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and ZHEJIANG DIBAY ELECTRICLtd is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and ZHEJIANG DIBAY ELECTRICLtd is halfway there. ZHEJIANG DIBAY ELECTRICLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for ZHEJIANG DIBAY ELECTRICLtd and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.