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 Nantong Jianghai Capacitor Co. Ltd. (SZSE:002484) is about to go ex-dividend in just day or so. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Nantong Jianghai Capacitor's shares on or after the 17th of June, you won't be eligible to receive the dividend, when it is paid on the 17th of June.

The company's next dividend payment will be CN¥0.26 per share. Last year, in total, the company distributed CN¥0.26 to shareholders. Looking at the last 12 months of distributions, Nantong Jianghai Capacitor has a trailing yield of approximately 1.8% on its current stock price of CN¥14.31. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Nantong Jianghai Capacitor can afford its dividend, and if the dividend could grow.

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. That's why it's good to see Nantong Jianghai Capacitor paying out a modest 32% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 44% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Nantong Jianghai Capacitor has grown its earnings rapidly, up 22% a year for the past five years. Nantong Jianghai Capacitor is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nantong Jianghai Capacitor has delivered 24% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Nantong Jianghai Capacitor? Nantong Jianghai Capacitor has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Nantong Jianghai Capacitor looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Nantong Jianghai Capacitor for the dividends alone, you should always be mindful of the risks involved. For example - Nantong Jianghai Capacitor has 1 warning sign we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com