Read This Before Considering Jiangyin Electrical Alloy Co.,Ltd (SZSE:300697) For Its Upcoming CN¥0.20 Dividend

It looks like Jiangyin Electrical Alloy Co.,Ltd (SZSE:300697) is about to go ex-dividend in the next two 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. Thus, you can purchase Jiangyin Electrical AlloyLtd's shares before the 15th of May in order to receive the dividend, which the company will pay on the 15th of May.

The company's next dividend payment will be CN¥0.20 per share, on the back of last year when the company paid a total of CN¥0.20 to shareholders. Last year's total dividend payments show that Jiangyin Electrical AlloyLtd has a trailing yield of 1.9% on the current share price of CN¥10.79. 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 investigate whether Jiangyin Electrical AlloyLtd can afford its dividend, and if the dividend could grow.

See our latest analysis for Jiangyin Electrical AlloyLtd

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Jiangyin Electrical AlloyLtd is paying out an acceptable 54% of its profit, a common payout level among 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. It paid out 107% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Jiangyin Electrical AlloyLtd 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 Jiangyin Electrical AlloyLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Jiangyin Electrical AlloyLtd 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Jiangyin Electrical AlloyLtd's earnings per share have risen 13% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, Jiangyin Electrical AlloyLtd has increased its dividend at approximately 27% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Has Jiangyin Electrical AlloyLtd got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Jiangyin Electrical AlloyLtd paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's hard to get excited about Jiangyin Electrical AlloyLtd from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Jiangyin Electrical AlloyLtd, you should know about the other risks facing this business. We've identified 2 warning signs with Jiangyin Electrical AlloyLtd (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

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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.