Dividend Investors: Don't Be Too Quick To Buy Beijing Oriental Yuhong Waterproof Technology Co., Ltd. (SZSE:002271) For Its Upcoming Dividend

Readers hoping to buy Beijing Oriental Yuhong Waterproof Technology Co., Ltd. (SZSE:002271) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. In other words, investors can purchase Beijing Oriental Yuhong Waterproof Technology's shares before the 26th of September in order to be eligible for the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be CN¥0.60 per share, on the back of last year when the company paid a total of CN¥0.60 to shareholders. Looking at the last 12 months of distributions, Beijing Oriental Yuhong Waterproof Technology has a trailing yield of approximately 5.8% on its current stock price of CN¥10.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Beijing Oriental Yuhong Waterproof Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Beijing Oriental Yuhong Waterproof Technology paid out 156% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Beijing Oriental Yuhong Waterproof Technology fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Beijing Oriental Yuhong Waterproof Technology earnings per share are up 3.3% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Beijing Oriental Yuhong Waterproof Technology has delivered an average of 31% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Beijing Oriental Yuhong Waterproof Technology an attractive dividend stock, or better left on the shelf? Beijing Oriental Yuhong Waterproof Technology has been steadily growing its earnings per share, and it is paying out just 42% of its cash flow but an uncomfortably high 156% of its income. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Beijing Oriental Yuhong Waterproof Technology's dividend merits.

So if you want to do more digging on Beijing Oriental Yuhong Waterproof Technology, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Beijing Oriental Yuhong Waterproof Technology and you should be aware of it before buying any 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.