Why It Might Not Make Sense To Buy AUPU Intelligent Technology Corporation Limited (SHSE:603551) For Its Upcoming Dividend

It looks like AUPU Intelligent Technology Corporation Limited (SHSE:603551) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Meaning, you will need to purchase AUPU Intelligent Technology's shares before the 30th of September to receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be CN¥0.30 per share, on the back of last year when the company paid a total of CN¥0.80 to shareholders. Calculating the last year's worth of payments shows that AUPU Intelligent Technology has a trailing yield of 6.2% on the current share price of CN¥9.72. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for AUPU Intelligent Technology

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. AUPU Intelligent Technology distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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 more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while AUPU Intelligent Technology's dividends were not covered by profits, at least they are affordable from a cash perspective. 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 the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that AUPU Intelligent Technology's earnings are effectively flat 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. AUPU Intelligent Technology has delivered an average of 16% per year annual increase in its dividend, based on the past four years of dividend payments.

The Bottom Line

Should investors buy AUPU Intelligent Technology for the upcoming dividend? The company has not generated any growth in earnings per share over the four-year timeframe we measured. Additionally, AUPU Intelligent Technology is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of AUPU Intelligent Technology.

With that in mind though, if the poor dividend characteristics of AUPU Intelligent Technology don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 1 warning sign for AUPU Intelligent Technology and you should be aware of it before buying any shares.

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.