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 Chengdu Yunda Technology Co., Ltd. (SZSE:300440) is about to go ex-dividend in just day or two. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Accordingly, Chengdu Yunda Technology investors that purchase the stock 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¥0.045 a share, following on from the last 12 months, when the company distributed a total of CN¥0.045 per share to shareholders. Based on the last year's worth of payments, Chengdu Yunda Technology has a trailing yield of 0.8% on the current stock price of CN¥5.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Chengdu Yunda Technology is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 2.9% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Chengdu Yunda Technology'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 Chengdu Yunda Technology paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Chengdu Yunda Technology's flat earnings 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. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Chengdu Yunda Technology has seen its dividend decline 4.0% per annum on average over the past nine years, which is not great to see.
To Sum It Up
Should investors buy Chengdu Yunda Technology for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Chengdu Yunda Technology is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Chengdu Yunda Technology is halfway there. There's a lot to like about Chengdu Yunda Technology, and we would prioritise taking a closer look at it.
In light of that, while Chengdu Yunda Technology has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Chengdu Yunda Technology is showing 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
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.