Don't Race Out To Buy Sublime China Information Co., Ltd. (SZSE:301299) Just Because It's Going Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sublime China Information Co., Ltd. (SZSE:301299) is about to go ex-dividend in just day or so. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Sublime China Information's shares before the 15th of January to receive the dividend, which will be paid on the 15th of January.

The company's next dividend payment will be CN¥0.40 per share, and in the last 12 months, the company paid a total of CN¥2.50 per share. Last year's total dividend payments show that Sublime China Information has a trailing yield of 4.2% on the current share price of CN¥58.95. 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 Sublime China Information can afford its dividend, and if the dividend could grow.

See our latest analysis for Sublime China Information

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. An unusually high payout ratio of 231% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 667% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Sublime China Information intends to continue funding this dividend, or if it could be forced to cut the payment.

Cash is slightly more important than profit from a dividend perspective, but given Sublime China Information's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Sublime China Information paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Sublime China Information's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Sublime China Information also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, two years ago, Sublime China Information has lifted its dividend by approximately 77% a year on average.

Final Takeaway

Is Sublime China Information an attractive dividend stock, or better left on the shelf? It's been unable to generate earnings growth, yet is paying out an uncomfortably high percentage of both its profits (231%) and cash flow (667%) as dividends. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Sublime China Information and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 1 warning sign for Sublime China Information that we recommend you consider before investing in the business.

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.