We Wouldn't Be Too Quick To Buy Xiamen Yanjan New Material Co., Ltd. (SZSE:300658) Before It Goes 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 Xiamen Yanjan New Material Co., Ltd. (SZSE:300658) is about to go ex-dividend in just 3 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. In other words, investors can purchase Xiamen Yanjan New Material's shares before the 13th of June in order to be eligible for the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be CN¥0.035 per share, and in the last 12 months, the company paid a total of CN¥0.035 per share. Looking at the last 12 months of distributions, Xiamen Yanjan New Material has a trailing yield of approximately 0.8% on its current stock price of CN¥4.37. If you buy this business for its dividend, you should have an idea of whether Xiamen Yanjan New Material's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Xiamen Yanjan New Material

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. Xiamen Yanjan New Material is paying out an acceptable 53% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Xiamen Yanjan New Material generated enough free cash flow to afford its dividend. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Xiamen Yanjan New Material paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Xiamen Yanjan New Material's earnings per share have fallen at approximately 17% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Xiamen Yanjan New Material has seen its dividend decline 18% per annum on average over the past six years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is Xiamen Yanjan New Material an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Xiamen Yanjan New Material's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Xiamen Yanjan New Material has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Xiamen Yanjan New Material as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 3 warning signs for Xiamen Yanjan New Material (2 are potentially serious) you should be aware of.

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.