Is it smart to buy Willfar Information Technology Co., Ltd. (SHSE: 688100) before it goes ex-dividend?

Some investors rely on dividends to grow their wealth, and if you’re one of those dividend detectives, you might be intrigued to know that Willfar Information Technology Co., Ltd. (SHSE:688100) is about to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date, which is the day shareholders need to be registered with the company to receive a dividend. The ex-dividend date is important because the settlement process involves two full business days. Therefore, if you miss this date, it will not appear in the company’s books on the registration date. Therefore, you will be able to purchase Willfar Information Technology shares before May 9th to receive the dividend, which the company will pay on May 9th.

The company’s next dividend is CN¥0.43 per share, following on from the last 12 months when the company distributed a total of CN¥0.43 per share to shareholders. Based on last year’s worth of payments, Willfar Information Technology has a trailing yield of 1.2% on the current share price of CN¥34.79. Dividends are a major contributor to investment returns for long-term holders, but only if the dividend continues to be paid. We need to see if the dividend is covered by profits and is growing.

See our latest analysis for Willfar Information Technology

Dividends are typically paid out of the company’s profits. If a company pays more in dividends than it made in profit, then the dividend may be unsustainable. Willfar Information Technology paid out a comfortable 39% of its profit last year. That said, even highly profitable companies can sometimes not generate enough cash to pay dividends, which is why we should always check whether dividends are covered by cash flow. It paid out 39% of its free cash flow as dividends, a comfortable payout level for most companies.

It’s positive to see that Willfar Information Technology’s dividend is covered by both profits and cash flow, as 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 was cut.

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

Have earnings and dividends increased?

Companies with strong growth prospects generally make the best dividend payers because it’s easier to increase dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is cut, expect a stock to sell heavily at the same time. That’s why it’s reassuring to see that Willfar Information Technology’s profits have soared, increasing 23% annually over the past five years. Earnings per share have been growing very quickly and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing profits and low payout ratios are often the best long-term dividend stocks, as the company can grow its profits and increase the percentage of profits it pays out, essentially multiplying the dividend.

Another important way to measure a company’s dividend prospects is to measure its historical dividend growth rate. Since our data began four years ago, Willfar Information Technology has increased its dividend by approximately 25% per year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly in recent years.

Final conclusion

Is Willfar Information Technology an attractive dividend stock, or is it better left on the shelf? We love that Willfar Information Technology is growing earnings per share while paying out a low percentage of its profits and cash flow. These characteristics suggest that the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of a dividend cut in the future. There’s a lot to like about Willfar Information Technology, and we’d prioritize taking a closer look.

Speaking of which, you’ll want to research what risks Willfar Information Technology is facing. For example, we find 1 Warning Sign for Willfar Information Technology which we recommend you consider before investing in the business.

Generally, we don’t recommend just buying the first dividend stocks you see. Here it is a curated list of interesting stocks that are strong dividend payers.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your objectives or financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.