Dividend Investors: Don't Be Too Quick To Buy Goldenmax International Group Ltd. (SZSE:002636) For Its Upcoming Dividend

Goldenmax International Group Ltd. (SZSE:002636) is about to trade ex-dividend in the next two 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. 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 Goldenmax International Group's shares before the 18th of June in order to be eligible for the dividend, which will be paid on the 18th of June.

The company's upcoming dividend is CN¥0.06 a share, following on from the last 12 months, when the company distributed a total of CN¥0.06 per share to shareholders. Calculating the last year's worth of payments shows that Goldenmax International Group has a trailing yield of 0.9% on the current share price of CN¥6.70. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Goldenmax International Group

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. Goldenmax International Group reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Goldenmax International Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see how much of its profit Goldenmax International Group 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. Goldenmax International Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Goldenmax International Group has delivered an average of 10% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Goldenmax International Group's balance sheet health here.

The Bottom Line

Has Goldenmax International Group got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Goldenmax International Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Goldenmax International Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 3 warning signs for Goldenmax International Group (of which 1 shouldn't be ignored!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com