Dividend Investors: Don't Be Too Quick To Buy Ningbo TIP Rubber Technology Co.,Ltd (SHSE:605255) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ningbo TIP Rubber Technology Co.,Ltd (SHSE:605255) is about to trade ex-dividend in the next two days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Ningbo TIP Rubber TechnologyLtd's shares before the 5th of June in order to be eligible for the dividend, which will be paid on the 5th of June.

The company's next dividend payment will be CN¥0.22 per share, and in the last 12 months, the company paid a total of CN¥0.22 per share. Looking at the last 12 months of distributions, Ningbo TIP Rubber TechnologyLtd has a trailing yield of approximately 1.6% on its current stock price of CN¥13.66. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Ningbo TIP Rubber TechnologyLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Ningbo TIP Rubber TechnologyLtd paid out 95% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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 more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Ningbo TIP Rubber TechnologyLtd's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit Ningbo TIP Rubber TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Ningbo TIP Rubber TechnologyLtd's 25% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ningbo TIP Rubber TechnologyLtd has seen its dividend decline 33% per annum on average over the past three years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Has Ningbo TIP Rubber TechnologyLtd got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. Additionally, Ningbo TIP Rubber TechnologyLtd is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Ningbo TIP Rubber TechnologyLtd.

So if you're still interested in Ningbo TIP Rubber TechnologyLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with Ningbo TIP Rubber TechnologyLtd (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.