Should Income Investors Look At Zhejiang Crystal-Optech Co., Ltd (SZSE:002273) Before Its Ex-Dividend?

Simply Wall St · 10/21 22:16

Readers hoping to buy Zhejiang Crystal-Optech Co., Ltd (SZSE:002273) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Zhejiang Crystal-Optech's shares on or after the 25th of October will not receive the dividend, which will be paid on the 25th of October.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.20 to shareholders. Based on the last year's worth of payments, Zhejiang Crystal-Optech stock has a trailing yield of around 1.0% on the current share price of CN¥19.74. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Zhejiang Crystal-Optech

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Zhejiang Crystal-Optech paid out 66% of its earnings to investors last year, a normal payout level for most businesses. 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 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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.

historic-dividend
SZSE:002273 Historic Dividend October 21st 2024

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. With that in mind, we're encouraged by the steady growth at Zhejiang Crystal-Optech, with earnings per share up 7.9% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang Crystal-Optech has delivered 18% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Zhejiang Crystal-Optech got what it takes to maintain its dividend payments? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall, it's hard to get excited about Zhejiang Crystal-Optech from a dividend perspective.

However if you're still interested in Zhejiang Crystal-Optech as a potential investment, you should definitely consider some of the risks involved with Zhejiang Crystal-Optech. Every company has risks, and we've spotted 2 warning signs for Zhejiang Crystal-Optech you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.