It Might Not Be A Great Idea To Buy Wuxi Online Offline Communication Information Technology Co., Ltd. (SZSE:300959) For Its Next Dividend

Wuxi Online Offline Communication Information Technology Co., Ltd. (SZSE:300959) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Wuxi Online Offline Communication Information Technology's shares on or after the 31st of May will not receive the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be CN¥0.27 per share, on the back of last year when the company paid a total of CN¥0.27 to shareholders. Based on the last year's worth of payments, Wuxi Online Offline Communication Information Technology stock has a trailing yield of around 1.0% on the current share price of CN¥26.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Wuxi Online Offline Communication Information Technology

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Wuxi Online Offline Communication Information Technology paid out a disturbingly high 222% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Wuxi Online Offline Communication Information Technology's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Wuxi Online Offline Communication Information Technology 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Wuxi Online Offline Communication Information Technology's earnings per share have plummeted approximately 33% 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. Wuxi Online Offline Communication Information Technology's dividend payments per share have declined at 3.5% 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.

Final Takeaway

Has Wuxi Online Offline Communication Information Technology got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. Worse, Wuxi Online Offline Communication Information Technology's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. 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 Wuxi Online Offline Communication Information Technology as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 4 warning signs with Wuxi Online Offline Communication Information Technology (at least 1 which shouldn't be ignored), and understanding these 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.