Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see China Merchants Expressway Network & Technology Holdings Co.,Ltd. (SZSE:001965) 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. 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. Meaning, you will need to purchase China Merchants Expressway Network & Technology HoldingsLtd's shares before the 5th of July to receive the dividend, which will be paid on the 5th of July.

The company's next dividend payment will be CN¥0.35 per share. Last year, in total, the company distributed CN¥0.35 to shareholders. Based on the last year's worth of payments, China Merchants Expressway Network & Technology HoldingsLtd has a trailing yield of 4.5% on the current stock price of CN¥7.63. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether China Merchants Expressway Network & Technology HoldingsLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for China Merchants Expressway Network & Technology HoldingsLtd

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. China Merchants Expressway Network & Technology HoldingsLtd paid out a comfortable 46% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 61% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that China Merchants Expressway Network & Technology HoldingsLtd'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?

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. 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 China Merchants Expressway Network & Technology HoldingsLtd earnings per share are up 3.2% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China Merchants Expressway Network & Technology HoldingsLtd has delivered an average of 12% per year annual increase in its dividend, based on the past four years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy China Merchants Expressway Network & Technology HoldingsLtd for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that China Merchants Expressway Network & Technology HoldingsLtd is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

In light of that, while China Merchants Expressway Network & Technology HoldingsLtd has an appealing dividend, it's worth knowing the risks involved with this stock. For example - China Merchants Expressway Network & Technology HoldingsLtd has 1 warning sign we think you should be aware of.

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.