It looks like Jiangsu Jiangnan High Polymer Fiber Co.,Ltd (SHSE:600527) is about to go 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. Meaning, you will need to purchase Jiangsu Jiangnan High Polymer FiberLtd's shares before the 21st of June to receive the dividend, which will be paid on the 21st of June.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.10 to shareholders. Based on the last year's worth of payments, Jiangsu Jiangnan High Polymer FiberLtd has a trailing yield of 4.9% on the current stock price of CN¥2.05. If you buy this business for its dividend, you should have an idea of whether Jiangsu Jiangnan High Polymer FiberLtd's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Jiangsu Jiangnan High Polymer FiberLtd

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. Jiangsu Jiangnan High Polymer FiberLtd paid out a disturbingly high 229% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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 152% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Jiangsu Jiangnan High Polymer FiberLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Jiangsu Jiangnan High Polymer FiberLtd's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Jiangsu Jiangnan High Polymer FiberLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Jiangsu Jiangnan High Polymer FiberLtd's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings are not growing much and Jiangsu Jiangnan High Polymer FiberLtd paid out a lot more than it earned in profit last year. This makes the dividend look potentially unsustainable in the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Jiangsu Jiangnan High Polymer FiberLtd has lifted its dividend by approximately 7.2% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Jiangsu Jiangnan High Polymer FiberLtd? Jiangsu Jiangnan High Polymer FiberLtd is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. It's not that we think Jiangsu Jiangnan High Polymer FiberLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Jiangsu Jiangnan High Polymer FiberLtd don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 1 warning sign with Jiangsu Jiangnan High Polymer FiberLtd 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.