Kaili Catalyst & New Materials Co.,Ltd. (SHSE:688269) is about to trade ex-dividend in the next four 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. In other words, investors can purchase Kaili Catalyst & New MaterialsLtd's shares before the 25th of May in order to be eligible for the dividend, which will be paid on the 25th of May.

The company's next dividend payment will be CN¥1.00 per share. Last year, in total, the company distributed CN¥2.00 to shareholders. Looking at the last 12 months of distributions, Kaili Catalyst & New MaterialsLtd has a trailing yield of approximately 1.9% on its current stock price of CN¥102.79. 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 Kaili Catalyst & New MaterialsLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Kaili Catalyst & New MaterialsLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kaili Catalyst & New MaterialsLtd paid out 74% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Kaili Catalyst & New MaterialsLtd generated enough free cash flow to afford its dividend. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Kaili Catalyst & New MaterialsLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Kaili Catalyst & New MaterialsLtd's earnings have been skyrocketing, up 33% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Unfortunately Kaili Catalyst & New MaterialsLtd 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 Kaili Catalyst & New MaterialsLtd worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Kaili Catalyst & New MaterialsLtd is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's hard to get excited about Kaili Catalyst & New MaterialsLtd from a dividend perspective.

While it's tempting to invest in Kaili Catalyst & New MaterialsLtd for the dividends alone, you should always be mindful of the risks involved. For example - Kaili Catalyst & New MaterialsLtd has 1 warning sign we think you should be aware of.

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.