Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Minth Group Limited (HKG:425) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 1st of June in order to be eligible for this dividend, which will be paid on the 19th of June.

The upcoming dividend for Minth Group will put a total of HK$0.66 per share in shareholders' pockets, up from last year's total dividends of HK$0.60. 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 whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Minth Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Minth Group paid out a comfortable 40% of its profit last year. A useful secondary check can be to evaluate whether Minth Group generated enough free cash flow to afford its dividend. It paid out 81% 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.

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Minth Group, with earnings per share up 7.6% 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Minth Group has delivered an average of 12% per year annual increase in its dividend, based on the past ten years of dividend payments. 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.

Final Takeaway

Is Minth Group worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Minth Group is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. All things considered, we are not particularly enthused about Minth Group from a dividend perspective.

So while Minth Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Minth Group that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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. Thank you for reading.