Don't Race Out To Buy Tianjin Ruixin Technology Co.,Ltd (SZSE:300828) Just Because It's Going Ex-Dividend

It looks like Tianjin Ruixin Technology Co.,Ltd (SZSE:300828) is about to go ex-dividend in the next 3 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Tianjin Ruixin TechnologyLtd's shares before the 20th of January in order to receive the dividend, which the company will pay on the 20th of January.

The company's next dividend payment will be CN¥0.30 per share, and in the last 12 months, the company paid a total of CN¥0.30 per share. Based on the last year's worth of payments, Tianjin Ruixin TechnologyLtd stock has a trailing yield of around 2.0% on the current share price of CN¥14.90. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Tianjin Ruixin TechnologyLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Tianjin Ruixin TechnologyLtd

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. Fortunately Tianjin Ruixin TechnologyLtd's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Tianjin Ruixin TechnologyLtd generated enough free cash flow to afford its dividend. It paid out 107% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Tianjin Ruixin TechnologyLtd 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 Tianjin Ruixin TechnologyLtd 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 Tianjin Ruixin TechnologyLtd 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. Readers will understand then, why we're concerned to see Tianjin Ruixin TechnologyLtd's earnings per share have dropped 8.0% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past five years, Tianjin Ruixin TechnologyLtd has increased its dividend at approximately 12% a year on average.

To Sum It Up

Is Tianjin Ruixin TechnologyLtd worth buying for its dividend? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Tianjin Ruixin TechnologyLtd is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Tianjin Ruixin TechnologyLtd.

So if you're still interested in Tianjin Ruixin TechnologyLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for Tianjin Ruixin TechnologyLtd and you should be aware of these before buying any 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.