Dong-E-E-Jiao Co.,Ltd. (SZSE:000423) Is About To Go Ex-Dividend, And It Pays A 2.6% Yield

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 Dong-E-E-Jiao Co.,Ltd. (SZSE:000423) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Thus, you can purchase Dong-E-E-JiaoLtd's shares before the 12th of June in order to receive the dividend, which the company will pay on the 12th of June.

The company's upcoming dividend is CN¥1.78419 a share, following on from the last 12 months, when the company distributed a total of CN¥1.78 per share to shareholders. Based on the last year's worth of payments, Dong-E-E-JiaoLtd stock has a trailing yield of around 2.6% on the current share price of CN¥69.79. 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 investigate whether Dong-E-E-JiaoLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for Dong-E-E-JiaoLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 90% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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 distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Dong-E-E-JiaoLtd's earnings per share have fallen at approximately 9.1% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Dong-E-E-JiaoLtd has lifted its dividend by approximately 9.8% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Dong-E-E-JiaoLtd is already paying out 90% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Should investors buy Dong-E-E-JiaoLtd for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. In summary, while it has some positive characteristics, we're not inclined to race out and buy Dong-E-E-JiaoLtd today.

With that being said, if dividends aren't your biggest concern with Dong-E-E-JiaoLtd, you should know about the other risks facing this business. Every company has risks, and we've spotted 1 warning sign for Dong-E-E-JiaoLtd you should know about.

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.