We Wouldn't Be Too Quick To Buy China Yongda Automobiles Services Holdings Limited (HKG:3669) Before It Goes Ex-Dividend

China Yongda Automobiles Services Holdings Limited (HKG:3669) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase China Yongda Automobiles Services Holdings' shares before the 4th of June in order to be eligible for the dividend, which will be paid on the 30th of June.

The company's upcoming dividend is CN¥0.069 a share, following on from the last 12 months, when the company distributed a total of CN¥0.13 per share to shareholders. Looking at the last 12 months of distributions, China Yongda Automobiles Services Holdings has a trailing yield of approximately 5.8% on its current stock price of HK$2.41. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. China Yongda Automobiles Services Holdings distributed an unsustainably high 122% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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 last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while China Yongda Automobiles Services Holdings'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. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Check out our latest analysis for China Yongda Automobiles Services Holdings

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. China Yongda Automobiles Services Holdings's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 33% 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. Since the start of our data, 10 years ago, China Yongda Automobiles Services Holdings has lifted its dividend by approximately 2.5% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. China Yongda Automobiles Services Holdings is already paying out 122% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Has China Yongda Automobiles Services Holdings got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. Additionally, China Yongda Automobiles Services Holdings 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. 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 in mind though, if the poor dividend characteristics of China Yongda Automobiles Services Holdings don't faze you, it's worth being mindful of the risks involved with this business. For example - China Yongda Automobiles Services Holdings has 2 warning signs we think 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.