Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Tangshan Sunfar Silicon Industries Co.,Ltd. (SHSE:603938) is about to go ex-dividend in just four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Tangshan Sunfar Silicon IndustriesLtd's shares on or after the 28th of May will not receive the dividend, which will be paid on the 28th of May.

The company's upcoming dividend is CN¥0.052 a share, following on from the last 12 months, when the company distributed a total of CN¥0.052 per share to shareholders. Looking at the last 12 months of distributions, Tangshan Sunfar Silicon IndustriesLtd has a trailing yield of approximately 0.4% on its current stock price of CN¥13.62. If you buy this business for its dividend, you should have an idea of whether Tangshan Sunfar Silicon IndustriesLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tangshan Sunfar Silicon IndustriesLtd paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Tangshan Sunfar Silicon IndustriesLtd generated enough free cash flow to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Tangshan Sunfar Silicon IndustriesLtd'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 Tangshan Sunfar Silicon IndustriesLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Tangshan Sunfar Silicon IndustriesLtd's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tangshan Sunfar Silicon IndustriesLtd's dividend payments per share have declined at 6.6% per year on average over the past six years, which is uninspiring.

The Bottom Line

Should investors buy Tangshan Sunfar Silicon IndustriesLtd for the upcoming dividend? Earnings per share are down very slightly in recent times, and Tangshan Sunfar Silicon IndustriesLtd paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tangshan Sunfar Silicon IndustriesLtd today.

If you're not too concerned about Tangshan Sunfar Silicon IndustriesLtd's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 2 warning signs for Tangshan Sunfar Silicon IndustriesLtd and you should be aware of them before buying any shares.

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.