Don't Race Out To Buy Qingyan Environmental Technology Co., Ltd. (SZSE:301288) Just Because It's Going Ex-Dividend

It looks like Qingyan Environmental Technology Co., Ltd. (SZSE:301288) is about to go ex-dividend in the next two 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. Thus, you can purchase Qingyan Environmental Technology's shares before the 16th of May in order to receive the dividend, which the company will pay on the 16th of May.

The company's upcoming dividend is CN¥0.10 a share, following on from the last 12 months, when the company distributed a total of CN¥0.10 per share to shareholders. Last year's total dividend payments show that Qingyan Environmental Technology has a trailing yield of 0.7% on the current share price of CN¥13.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Qingyan Environmental Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Qingyan Environmental Technology paid out 108% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Qingyan Environmental Technology generated enough free cash flow to afford its dividend.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Qingyan Environmental Technology fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Qingyan Environmental Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Qingyan Environmental Technology's earnings per share have plummeted approximately 51% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Qingyan Environmental Technology has seen its dividend decline 13% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Qingyan Environmental Technology worth buying for its dividend? Not only are earnings per share declining, but Qingyan Environmental Technology is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Qingyan Environmental Technology despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 4 warning signs for Qingyan Environmental Technology (3 can't be ignored) you should be aware of.

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.