Don't Race Out To Buy Jiangsu Feymer Technology Co., Ltd. (SHSE:688350) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jiangsu Feymer Technology Co., Ltd. (SHSE:688350) is about to trade ex-dividend in the next three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Jiangsu Feymer Technology investors that purchase the stock on or after the 27th of May will not receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be CN¥0.248 per share, and in the last 12 months, the company paid a total of CN¥0.25 per share. Calculating the last year's worth of payments shows that Jiangsu Feymer Technology has a trailing yield of 1.9% on the current share price of CN¥13.30. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Jiangsu Feymer Technology can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Jiangsu Feymer Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Jiangsu Feymer Technology distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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 302% 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 Jiangsu Feymer 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.

Cash is slightly more important than profit from a dividend perspective, but given Jiangsu Feymer Technology'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 Jiangsu Feymer Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Jiangsu Feymer Technology's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 41% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jiangsu Feymer Technology has seen its dividend decline 15% per annum on average over the past three years, which is not great to see. 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

Has Jiangsu Feymer Technology got what it takes to maintain its dividend payments? Not only are earnings per share declining, but Jiangsu Feymer Technology is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not that we think Jiangsu Feymer Technology is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Jiangsu Feymer Technology. For example, we've found 4 warning signs for Jiangsu Feymer Technology (2 can't be ignored!) that deserve your attention before investing in the shares.

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.