Read This Before Considering Xi'an Shaangu Power Co., Ltd. (SHSE:601369) For Its Upcoming CN¥0.39 Dividend

Xi'an Shaangu Power Co., Ltd. (SHSE:601369) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Xi'an Shaangu Power's shares on or after the 6th of June, you won't be eligible to receive the dividend, when it is paid on the 6th of June.

The company's upcoming dividend is CN¥0.39 a share, following on from the last 12 months, when the company distributed a total of CN¥0.39 per share to shareholders. Based on the last year's worth of payments, Xi'an Shaangu Power stock has a trailing yield of around 4.3% on the current share price of CN¥9.01. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Xi'an Shaangu Power can afford its dividend, and if the dividend could grow.

See our latest analysis for Xi'an Shaangu Power

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Xi'an Shaangu Power paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Xi'an Shaangu Power has grown its earnings rapidly, up 22% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Xi'an Shaangu Power has delivered 1.1% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Xi'an Shaangu Power is keeping back more of its profits to grow the business.

The Bottom Line

Is Xi'an Shaangu Power an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Xi'an Shaangu Power's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 67% and 68% respectively. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

In light of that, while Xi'an Shaangu Power has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Xi'an Shaangu Power that we recommend you consider before investing in the business.

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.