We Wouldn't Be Too Quick To Buy Chengdu Fusen Noble-House Industrial Co.,Ltd. (SZSE:002818) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Chengdu Fusen Noble-House Industrial Co.,Ltd. (SZSE:002818) is about to trade ex-dividend in the next two days. The ex-dividend date generally occurs two days 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Chengdu Fusen Noble-House IndustrialLtd's shares before the 3rd of April to receive the dividend, which will be paid on the 3rd of April.

The company's next dividend payment will be CN¥0.68 per share, and in the last 12 months, the company paid a total of CN¥1.08 per share. Calculating the last year's worth of payments shows that Chengdu Fusen Noble-House IndustrialLtd has a trailing yield of 7.7% on the current share price of CN¥14.08. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Chengdu Fusen Noble-House IndustrialLtd has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Chengdu Fusen Noble-House IndustrialLtd paid out 117% 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. 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 106% 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.

Chengdu Fusen Noble-House IndustrialLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Chengdu Fusen Noble-House IndustrialLtd's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

See our latest analysis for Chengdu Fusen Noble-House IndustrialLtd

Click here to see how much of its profit Chengdu Fusen Noble-House IndustrialLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Chengdu Fusen Noble-House IndustrialLtd's earnings are down 2.9% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chengdu Fusen Noble-House IndustrialLtd has delivered 18% dividend growth per year on average over the past eight years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Chengdu Fusen Noble-House IndustrialLtd is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

From a dividend perspective, should investors buy or avoid Chengdu Fusen Noble-House IndustrialLtd? Not only are earnings per share declining, but Chengdu Fusen Noble-House IndustrialLtd 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 an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Chengdu Fusen Noble-House IndustrialLtd as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Chengdu Fusen Noble-House IndustrialLtd that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.