Readers hoping to buy China Motor Bus Company, Limited (HKG:26) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase China Motor Bus Company's shares on or after the 17th of January, you won't be eligible to receive the dividend, when it is paid on the 9th of February.

The company's next dividend payment will be HK$1.80 per share, which looks like a nice increase on last year, when the company distributed a total of HK$1.50 to shareholders. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether China Motor Bus Company has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for China Motor Bus Company

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 China Motor Bus Company paying out a modest 31% of its earnings. 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. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that China Motor Bus Company'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 China Motor Bus Company paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. China Motor Bus Company's earnings per share have plummeted approximately 35% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, China Motor Bus Company has lifted its dividend by approximately 3.4% a year on average.

To Sum It Up

Is China Motor Bus Company worth buying for its dividend? Earnings per share have fallen significantly, although at least China Motor Bus Company paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall, it's hard to get excited about China Motor Bus Company from a dividend perspective.

If you want to look further into China Motor Bus Company, it's worth knowing the risks this business faces. To that end, you should learn about the 2 warning signs we've spotted with China Motor Bus Company (including 1 which doesn't sit too well with us).

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.