Income Investors Should Know That Jiamei Food Packaging (Chuzhou) Co.,Ltd (SZSE:002969) Goes Ex-Dividend Soon

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 Jiamei Food Packaging (Chuzhou) Co.,Ltd (SZSE:002969) is about to go ex-dividend in just four days. 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 Jiamei Food Packaging (Chuzhou)Ltd's shares on or after the 28th of May will not receive the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be CN¥0.03 per share, and in the last 12 months, the company paid a total of CN¥0.03 per share. Looking at the last 12 months of distributions, Jiamei Food Packaging (Chuzhou)Ltd has a trailing yield of approximately 0.9% on its current stock price of CN¥3.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Jiamei Food Packaging (Chuzhou)Ltd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Jiamei Food Packaging (Chuzhou)Ltd paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 paid out 102% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Jiamei Food Packaging (Chuzhou)Ltd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Jiamei Food Packaging (Chuzhou)Ltd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Jiamei Food Packaging (Chuzhou)Ltd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Jiamei Food Packaging (Chuzhou)Ltd's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Jiamei Food Packaging (Chuzhou)Ltd has lifted its dividend by approximately 12% a year on average.

The Bottom Line

Should investors buy Jiamei Food Packaging (Chuzhou)Ltd for the upcoming dividend? It's disappointing to see earnings per share have fallen slightly, even though Jiamei Food Packaging (Chuzhou)Ltd is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Jiamei Food Packaging (Chuzhou)Ltd as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Jiamei Food Packaging (Chuzhou)Ltd is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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.