Do These 3 Checks Before Buying Xingye Leather Technology Co., Ltd. (SZSE:002674) For Its Upcoming Dividend

It looks like Xingye Leather Technology Co., Ltd. (SZSE:002674) is about to go ex-dividend in the next four 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 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. This means that investors who purchase Xingye Leather Technology's shares on or after the 29th of May will not receive the dividend, which will be paid on the 29th of May.

The company's next dividend payment will be CN¥0.60 per share. Last year, in total, the company distributed CN¥0.60 to shareholders. Based on the last year's worth of payments, Xingye Leather Technology has a trailing yield of 5.1% on the current stock price of CN¥11.80. 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! As a result, readers should always check whether Xingye Leather Technology has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Xingye Leather 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. Last year, Xingye Leather Technology paid out 91% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. It paid out an unsustainably high 222% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Xingye Leather Technology is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

As Xingye Leather Technology's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Xingye Leather Technology's earnings per share have been growing at 11% a year for the past five years. We're a bit put out by the fact that Xingye Leather Technology paid out virtually all of its earnings and cashflow as dividends over the last year. Earnings are growing at a decent clip, so this payout ratio may prove sustainable, but it's not great to see.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Xingye Leather Technology has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Has Xingye Leather Technology got what it takes to maintain its dividend payments? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Xingye Leather Technology and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 1 warning sign for Xingye Leather Technology you should know about.

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.