It Might Not Be A Great Idea To Buy Tus-Design Group Co., Ltd. (SZSE:300500) For Its Next Dividend

Tus-Design Group Co., Ltd. (SZSE:300500) stock is about to trade ex-dividend in 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Tus-Design Group investors that purchase the stock on or after the 14th of June will not receive the dividend, which will be paid on the 14th of June.

The company's upcoming dividend is CN¥0.06 a share, following on from the last 12 months, when the company distributed a total of CN¥0.06 per share to shareholders. Calculating the last year's worth of payments shows that Tus-Design Group has a trailing yield of 0.6% on the current share price of CN¥9.47. 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 investigate whether Tus-Design Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Tus-Design 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. Tus-Design Group paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 54% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see how much of its profit Tus-Design Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Tus-Design Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tus-Design Group's dividend payments per share have declined at 3.1% per year on average over the past eight years, which is uninspiring. 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.

Remember, you can always get a snapshot of Tus-Design Group's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Tus-Design Group? It's hard to get used to Tus-Design Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Tus-Design Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Tus-Design Group and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 2 warning signs for Tus-Design Group you should be aware of.

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.