Dividend Investors: Don't Be Too Quick To Buy Jilin OLED Material Tech Co., Ltd. (SHSE:688378) For Its Upcoming Dividend

Jilin OLED Material Tech Co., Ltd. (SHSE:688378) stock is about to trade ex-dividend in 3 days. 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Jilin OLED Material Tech's shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥0.80 per share. Last year, in total, the company distributed CN¥0.80 to shareholders. Based on the last year's worth of payments, Jilin OLED Material Tech has a trailing yield of 2.2% on the current stock price of CN¥36.23. If you buy this business for its dividend, you should have an idea of whether Jilin OLED Material Tech's dividend is reliable and sustainable. As a result, readers should always check whether Jilin OLED Material Tech has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Jilin OLED Material Tech

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Jilin OLED Material Tech paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Jilin OLED Material Tech paid out more free cash flow than it generated - 112%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

As Jilin OLED Material Tech's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Jilin OLED Material Tech's earnings per share have been shrinking at 4.1% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Jilin OLED Material Tech has delivered an average of 16% per year annual increase in its dividend, based on the past three years of dividend payments. 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. Jilin OLED Material Tech 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.

The Bottom Line

From a dividend perspective, should investors buy or avoid Jilin OLED Material Tech? Not only are earnings per share declining, but Jilin OLED Material Tech 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 that we think Jilin OLED Material Tech is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Jilin OLED Material Tech and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 3 warning signs with Jilin OLED Material Tech (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

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.