Shanxi Coal International Energy Group Co.,Ltd (SHSE:600546) Pays A CN¥0.65 Dividend In Just Two Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shanxi Coal International Energy Group Co.,Ltd (SHSE:600546) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Shanxi Coal International Energy GroupLtd's shares before the 15th of May in order to be eligible for the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be CN¥0.65 per share, on the back of last year when the company paid a total of CN¥0.65 to shareholders. Calculating the last year's worth of payments shows that Shanxi Coal International Energy GroupLtd has a trailing yield of 4.3% on the current share price of CN¥15.09. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shanxi Coal International Energy GroupLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Shanxi Coal International Energy GroupLtd

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. Fortunately Shanxi Coal International Energy GroupLtd's payout ratio is modest, at just 41% of profit. 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. Over the last year, it paid out dividends equivalent to 275% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Shanxi Coal International Energy GroupLtd intends to continue funding this dividend, or if it could be forced to cut the payment.

Shanxi Coal International Energy GroupLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Shanxi Coal International Energy GroupLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Shanxi Coal International Energy GroupLtd's earnings have been skyrocketing, up 70% per annum for the past five years. Earnings have been growing quickly, 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. Shanxi Coal International Energy GroupLtd has delivered an average of 29% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Shanxi Coal International Energy GroupLtd an attractive dividend stock, or better left on the shelf? We like that Shanxi Coal International Energy GroupLtd has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. To summarise, Shanxi Coal International Energy GroupLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Shanxi Coal International Energy GroupLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for Shanxi Coal International Energy GroupLtd you should be aware of.

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.