Xilinmen FurnitureLtd (SHSE:603008) Could Be A Buy For Its Upcoming Dividend

It looks like Xilinmen Furniture Co.,Ltd (SHSE:603008) is about to go ex-dividend in the next 2 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Xilinmen FurnitureLtd's shares before the 6th of June in order to receive the dividend, which the company will pay on the 6th of June.

The company's upcoming dividend is CN¥0.50 a share, following on from the last 12 months, when the company distributed a total of CN¥0.50 per share to shareholders. Calculating the last year's worth of payments shows that Xilinmen FurnitureLtd has a trailing yield of 2.5% on the current share price of CN¥20.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Xilinmen FurnitureLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Xilinmen FurnitureLtd paid out a comfortable 44% of its profit last year. A useful secondary check can be to evaluate whether Xilinmen FurnitureLtd generated enough free cash flow to afford its dividend. It paid out 8.7% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Xilinmen FurnitureLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Xilinmen FurnitureLtd's earnings have been skyrocketing, up 29% per annum for the past five years. Xilinmen FurnitureLtd is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Xilinmen FurnitureLtd has delivered 14% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Xilinmen FurnitureLtd an attractive dividend stock, or better left on the shelf? It's great that Xilinmen FurnitureLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Xilinmen FurnitureLtd, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for Xilinmen FurnitureLtd 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.