Dividend Investors: Don't Be Too Quick To Buy Nanjing OLO Home Furnishing Co.,Ltd (SHSE:603326) For Its Upcoming Dividend

Readers hoping to buy Nanjing OLO Home Furnishing Co.,Ltd (SHSE:603326) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Nanjing OLO Home FurnishingLtd investors that purchase the stock on or after the 27th of February will not receive the dividend, which will be paid on the 27th of February.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.27 to shareholders. Last year's total dividend payments show that Nanjing OLO Home FurnishingLtd has a trailing yield of 3.8% on the current share price of CN¥7.06. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Nanjing OLO Home FurnishingLtd has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Nanjing OLO Home FurnishingLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Nanjing OLO Home FurnishingLtd paid out 105% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 42% of its free cash flow in the past year.

It's good to see that while Nanjing OLO Home FurnishingLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Nanjing OLO Home FurnishingLtd 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Nanjing OLO Home FurnishingLtd's earnings are down 4.3% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, Nanjing OLO Home FurnishingLtd has increased its dividend at approximately 19% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Nanjing OLO Home FurnishingLtd is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Is Nanjing OLO Home FurnishingLtd an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 105% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Nanjing OLO Home FurnishingLtd's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Nanjing OLO Home FurnishingLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Nanjing OLO Home FurnishingLtd and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 4 warning signs for Nanjing OLO Home FurnishingLtd (1 can't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.