It looks like Shuhua Sports Co., Ltd. (SHSE:605299) 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. Therefore, if you purchase Shuhua Sports' shares on or after the 9th of May, you won't be eligible to receive the dividend, when it is paid on the 9th of May.

The company's next dividend payment will be CN¥0.30 per share, on the back of last year when the company paid a total of CN¥0.30 to shareholders. Calculating the last year's worth of payments shows that Shuhua Sports has a trailing yield of 3.0% on the current share price of CN¥9.90. If you buy this business for its dividend, you should have an idea of whether Shuhua Sports's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Shuhua Sports paid out 98% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its 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 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 Shuhua Sports's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit Shuhua Sports paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Shuhua Sports's flat earnings 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shuhua Sports's dividend payments are broadly unchanged compared to where they were three years ago.

The Bottom Line

Is Shuhua Sports an attractive dividend stock, or better left on the shelf? The company has not generated any growth in earnings per share over the three-year timeframe we measured. Plus, Shuhua Sports's paying out a high percentage of its earnings and more than half its cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Shuhua Sports.

So if you're still interested in Shuhua Sports despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 1 warning sign for Shuhua Sports and you should be aware of it before buying any shares.

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.