It Might Not Be A Great Idea To Buy Ningxia Qinglong Pipes Industry Group Co., Ltd. (SZSE:002457) For Its Next Dividend

It looks like Ningxia Qinglong Pipes Industry Group Co., Ltd. (SZSE:002457) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Ningxia Qinglong Pipes Industry Group's shares on or after the 14th of May, you won't be eligible to receive the dividend, when it is paid on the 14th of May.

The company's next dividend payment will be CN¥0.09 per share, on the back of last year when the company paid a total of CN¥0.09 to shareholders. Calculating the last year's worth of payments shows that Ningxia Qinglong Pipes Industry Group has a trailing yield of 1.1% on the current share price of CN¥8.18. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Ningxia Qinglong Pipes Industry Group

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. Ningxia Qinglong Pipes Industry Group distributed an unsustainably high 125% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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 more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while Ningxia Qinglong Pipes Industry Group's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Ningxia Qinglong Pipes Industry Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Ningxia Qinglong Pipes Industry Group's 19% 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. Ningxia Qinglong Pipes Industry Group has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Ningxia Qinglong Pipes Industry Group is already paying out 125% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Is Ningxia Qinglong Pipes Industry Group worth buying for its dividend? Earnings per share have been in decline, which is not encouraging. What's more, Ningxia Qinglong Pipes Industry Group is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not that we think Ningxia Qinglong Pipes Industry Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Ningxia Qinglong Pipes Industry Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To that end, you should learn about the 4 warning signs we've spotted with Ningxia Qinglong Pipes Industry Group (including 1 which is a bit concerning).

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.