Zhejiang Daily Digital Culture Group Co.,Ltd (SHSE:600633) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Zhejiang Daily Digital Culture GroupLtd's shares on or after the 24th of May, you won't be eligible to receive the dividend, when it is paid on the 24th of May.

The company's next dividend payment will be CN¥0.13 per share, on the back of last year when the company paid a total of CN¥0.13 to shareholders. Based on the last year's worth of payments, Zhejiang Daily Digital Culture GroupLtd stock has a trailing yield of around 1.3% on the current share price of CN¥9.89. If you buy this business for its dividend, you should have an idea of whether Zhejiang Daily Digital Culture GroupLtd'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 out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Zhejiang Daily Digital Culture GroupLtd paid out a comfortable 33% of its profit last year. A useful secondary check can be to evaluate whether Zhejiang Daily Digital Culture GroupLtd generated enough free cash flow to afford its dividend. Over the past year it paid out 112% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Zhejiang Daily Digital Culture GroupLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Zhejiang Daily Digital Culture GroupLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Zhejiang Daily Digital Culture GroupLtd's ability to maintain its dividend.

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

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Zhejiang Daily Digital Culture GroupLtd's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zhejiang Daily Digital Culture GroupLtd has seen its dividend decline 2.9% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Is Zhejiang Daily Digital Culture GroupLtd an attractive dividend stock, or better left on the shelf? Earnings per share have been effectively flat over this time, and Zhejiang Daily Digital Culture GroupLtd's paying out less than half its profits and 112% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. In summary, it's hard to get excited about Zhejiang Daily Digital Culture GroupLtd from a dividend perspective.

So if you want to do more digging on Zhejiang Daily Digital Culture GroupLtd, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 2 warning signs for Zhejiang Daily Digital Culture GroupLtd that we recommend you consider before investing in the business.

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.