Dividend Investors: Don't Be Too Quick To Buy Jiangxi Xinyu Guoke Technology Co., Ltd (SZSE:300722) For Its Upcoming Dividend

It looks like Jiangxi Xinyu Guoke Technology Co., Ltd (SZSE:300722) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. This means that investors who purchase Jiangxi Xinyu Guoke Technology's shares on or after the 18th of June will not receive the dividend, which will be paid on the 18th of June.

The company's next dividend payment will be CN¥0.16 per share, and in the last 12 months, the company paid a total of CN¥0.16 per share. Calculating the last year's worth of payments shows that Jiangxi Xinyu Guoke Technology has a trailing yield of 0.6% on the current share price of CN¥26.85. If you buy this business for its dividend, you should have an idea of whether Jiangxi Xinyu Guoke Technology's dividend is reliable and sustainable. So we need to investigate whether Jiangxi Xinyu Guoke Technology can afford its dividend, and if the dividend could grow.

View our latest analysis for Jiangxi Xinyu Guoke Technology

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. Jiangxi Xinyu Guoke Technology paid out 52% of its earnings to investors last year, a normal payout level for most businesses. 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 62% 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 how much of its profit Jiangxi Xinyu Guoke Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 not encouraging to see that Jiangxi Xinyu Guoke Technology's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Jiangxi Xinyu Guoke Technology has delivered an average of 7.4% per year annual increase in its dividend, based on the past six years of dividend payments.

The Bottom Line

Has Jiangxi Xinyu Guoke Technology got what it takes to maintain its dividend payments? Jiangxi Xinyu Guoke Technology has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. Bottom line: Jiangxi Xinyu Guoke Technology has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Jiangxi Xinyu Guoke Technology despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 1 warning sign for Jiangxi Xinyu Guoke Technology you should know about.

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.