We Wouldn't Be Too Quick To Buy Anhui Wanyi Science and Technology Co.,Ltd. (SHSE:688600) Before It Goes Ex-Dividend

It looks like Anhui Wanyi Science and Technology Co.,Ltd. (SHSE:688600) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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 Anhui Wanyi Science and TechnologyLtd's shares before the 17th of June to receive the dividend, which will be paid on the 17th of June.

The company's next dividend payment will be CN¥0.20 per share. Last year, in total, the company distributed CN¥0.20 to shareholders. Looking at the last 12 months of distributions, Anhui Wanyi Science and TechnologyLtd has a trailing yield of approximately 1.4% on its current stock price of CN¥14.29. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Anhui Wanyi Science and TechnologyLtd

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. Last year, Anhui Wanyi Science and TechnologyLtd paid out 297% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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 84% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Anhui Wanyi Science and TechnologyLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Anhui Wanyi Science and TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Anhui Wanyi Science and TechnologyLtd's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 34% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Anhui Wanyi Science and TechnologyLtd's dividend payments per share have declined at 7.2% per year on average over the past three years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Has Anhui Wanyi Science and TechnologyLtd got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. Additionally, Anhui Wanyi Science and TechnologyLtd is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Bottom line: Anhui Wanyi Science and TechnologyLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Anhui Wanyi Science and TechnologyLtd and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 3 warning signs for Anhui Wanyi Science and TechnologyLtd you should be aware of.

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.