Don't Buy Yutong Heavy Industries Co.,Ltd. (SHSE:600817) For Its Next Dividend Without Doing These Checks

It looks like Yutong Heavy Industries Co.,Ltd. (SHSE:600817) is about to go ex-dividend in the next two days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Yutong Heavy IndustriesLtd's shares before the 26th of December to receive the dividend, which will be paid on the 26th of December.

The company's next dividend payment will be CN¥0.10 per share, and in the last 12 months, the company paid a total of CN¥0.38 per share. Calculating the last year's worth of payments shows that Yutong Heavy IndustriesLtd has a trailing yield of 3.1% on the current share price of CN¥12.16. 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! As a result, readers should always check whether Yutong Heavy IndustriesLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Yutong Heavy IndustriesLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Yutong Heavy IndustriesLtd paid out 92% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 96% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Cash is slightly more important than profit from a dividend perspective, but given Yutong Heavy IndustriesLtd's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Yutong Heavy IndustriesLtd paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Yutong Heavy IndustriesLtd's earnings have been skyrocketing, up 69% per annum for the past five years. Earnings per share have been growing rapidly, but the company is paying out an uncomfortably high percentage of its earnings as dividends. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last three years, Yutong Heavy IndustriesLtd has lifted its dividend by approximately 2.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Yutong Heavy IndustriesLtd is keeping back more of its profits to grow the business.

To Sum It Up

Is Yutong Heavy IndustriesLtd worth buying for its dividend? While it's nice to see earnings per share growing, we're curious about how Yutong Heavy IndustriesLtd intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Yutong Heavy IndustriesLtd as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Yutong Heavy IndustriesLtd (1 is potentially serious!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.