We Wouldn't Be Too Quick To Buy Guangdong Yuehai Feeds Group Co.,Ltd. (SZSE:001313) Before It Goes Ex-Dividend

Guangdong Yuehai Feeds Group Co.,Ltd. (SZSE:001313) is about to trade ex-dividend in the next 2 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Guangdong Yuehai Feeds GroupLtd's shares on or after the 19th of June will not receive the dividend, which will be paid on the 19th of June.

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. Calculating the last year's worth of payments shows that Guangdong Yuehai Feeds GroupLtd has a trailing yield of 0.6% on the current share price of CN¥8.47. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Guangdong Yuehai Feeds GroupLtd

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. Last year, Guangdong Yuehai Feeds GroupLtd paid out 103% 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. A useful secondary check can be to evaluate whether Guangdong Yuehai Feeds GroupLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 219% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Guangdong Yuehai Feeds GroupLtd intends to continue funding this dividend, or if it could be forced to cut the payment.

Cash is slightly more important than profit from a dividend perspective, but given Guangdong Yuehai Feeds GroupLtd's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Guangdong Yuehai Feeds 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. Guangdong Yuehai Feeds GroupLtd's earnings per share have plummeted approximately 33% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Guangdong Yuehai Feeds GroupLtd's dividend payments per share have declined at 4.7% per year on average over the past two years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

From a dividend perspective, should investors buy or avoid Guangdong Yuehai Feeds GroupLtd? Not only are earnings per share declining, but Guangdong Yuehai Feeds GroupLtd is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Guangdong Yuehai Feeds GroupLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 2 warning signs for Guangdong Yuehai Feeds GroupLtd you should be aware of.

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.

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