Only Three Days Left To Cash In On Jiangxi Copper's (HKG:358) Dividend

It looks like Jiangxi Copper Company Limited (HKG:358) is about to go ex-dividend in the next 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Jiangxi Copper investors that purchase the stock on or after the 13th of June will not receive the dividend, which will be paid on the 18th of July.

The company's next dividend payment will be CN¥0.60 per share. Last year, in total, the company distributed CN¥0.60 to shareholders. Based on the last year's worth of payments, Jiangxi Copper stock has a trailing yield of around 3.8% on the current share price of HK$16.86. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Jiangxi Copper has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Jiangxi Copper

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Jiangxi Copper paying out a modest 32% of its earnings. 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. Over the past year it paid out 138% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Jiangxi Copper's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Jiangxi Copper to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Jiangxi Copper has grown its earnings rapidly, up 22% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Jiangxi Copper has lifted its dividend by approximately 1.8% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Is Jiangxi Copper worth buying for its dividend? We like that Jiangxi Copper has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, while it has some positive characteristics, we're not inclined to race out and buy Jiangxi Copper today.

On that note, you'll want to research what risks Jiangxi Copper is facing. In terms of investment risks, we've identified 1 warning sign with Jiangxi Copper and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.