Here's Why We're Wary Of Buying Nanfang Black Sesame GroupLtd's (SZSE:000716) For Its Upcoming Dividend

Readers hoping to buy Nanfang Black Sesame Group Co.,Ltd. (SZSE:000716) 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 a company's record date, which is the date on which the company determines which shareholders are entitled 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 Nanfang Black Sesame GroupLtd's shares on or after the 22nd of August will not receive the dividend, which will be paid on the 22nd of August.

The company's upcoming dividend is CN¥0.05 a share, following on from the last 12 months, when the company distributed a total of CN¥0.05 per share to shareholders. Looking at the last 12 months of distributions, Nanfang Black Sesame GroupLtd has a trailing yield of approximately 1.4% on its current stock price of CN¥3.63. If you buy this business for its dividend, you should have an idea of whether Nanfang Black Sesame GroupLtd's dividend is reliable and sustainable. As a result, readers should always check whether Nanfang Black Sesame GroupLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Nanfang Black Sesame GroupLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Nanfang Black Sesame GroupLtd 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. Over the past year it paid out 111% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Nanfang Black Sesame GroupLtd's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Nanfang Black Sesame GroupLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Nanfang Black Sesame GroupLtd's earnings per share have fallen at approximately 11% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nanfang Black Sesame GroupLtd has delivered 7.2% dividend growth per year on average over the past 10 years. 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. Nanfang Black Sesame GroupLtd 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

Has Nanfang Black Sesame GroupLtd got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (105%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Bottom line: Nanfang Black Sesame GroupLtd 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 Nanfang Black Sesame GroupLtd as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 3 warning signs we've spotted with Nanfang Black Sesame GroupLtd (including 2 which are a bit unpleasant).

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.