Fujian Yuanxiang New Materials Co.,Ltd (SZSE:301300) stock is about to trade ex-dividend in 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Therefore, if you purchase Fujian Yuanxiang New MaterialsLtd's shares on or after the 25th of May, you won't be eligible to receive the dividend, when it is paid on the 25th of May.

The company's next dividend payment will be CN¥0.40 per share. 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 Fujian Yuanxiang New MaterialsLtd has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Fujian Yuanxiang New MaterialsLtd

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. Fujian Yuanxiang New MaterialsLtd paid out a comfortable 48% 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 52% 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 Fujian Yuanxiang 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 how much of its profit Fujian Yuanxiang New MaterialsLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Fujian Yuanxiang New MaterialsLtd's earnings per share have risen 11% per annum over the last five years. Fujian Yuanxiang New MaterialsLtd is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

We'd also point out that Fujian Yuanxiang New MaterialsLtd issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

This is Fujian Yuanxiang New MaterialsLtd's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

Final Takeaway

From a dividend perspective, should investors buy or avoid Fujian Yuanxiang New MaterialsLtd? Earnings per share have grown at a nice rate in recent times and over the last year, Fujian Yuanxiang New MaterialsLtd paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Fujian Yuanxiang New MaterialsLtd is facing. For example - Fujian Yuanxiang New MaterialsLtd has 1 warning sign we think you should be aware of.

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.