We Wouldn't Be Too Quick To Buy Qingdao Foods Co., Ltd. (SZSE:001219) 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 Qingdao Foods Co., Ltd. (SZSE:001219) is about to go ex-dividend in just two days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Qingdao Foods' shares before the 27th of June to receive the dividend, which will be paid on the 27th of June.

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¥0.30 to shareholders. Calculating the last year's worth of payments shows that Qingdao Foods has a trailing yield of 1.9% on the current share price of CN¥15.57. If you buy this business for its dividend, you should have an idea of whether Qingdao Foods's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Qingdao Foods

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Qingdao Foods is paying out an acceptable 52% of its profit, a common payout level among most companies. 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. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

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 Qingdao Foods paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 Qingdao Foods's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Qingdao Foods has delivered an average of 30% per year annual increase in its dividend, based on the past two years of dividend payments.

To Sum It Up

Is Qingdao Foods an attractive dividend stock, or better left on the shelf? While earnings per share are flat, at least Qingdao Foods has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not that we think Qingdao Foods is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Qingdao Foods don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 2 warning signs for Qingdao Foods (1 makes us a bit uncomfortable!) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com