Readers hoping to buy Shanxi Coal International Energy Group Co.,Ltd (SHSE:600546) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Shanxi Coal International Energy GroupLtd's shares before the 15th of May to receive the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be CN¥0.65 per share, and in the last 12 months, the company paid a total of CN¥0.65 per share. Looking at the last 12 months of distributions, Shanxi Coal International Energy GroupLtd has a trailing yield of approximately 4.3% on its current stock price of CN¥15.09. If you buy this business for its dividend, you should have an idea of whether Shanxi Coal International Energy GroupLtd'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.

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. That's why it's good to see Shanxi Coal International Energy GroupLtd paying out a modest 41% of its earnings. A useful secondary check can be to evaluate whether Shanxi Coal International Energy GroupLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 275% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Shanxi Coal International Energy GroupLtd is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Shanxi Coal International Energy GroupLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Shanxi Coal International Energy GroupLtd's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Shanxi Coal International Energy GroupLtd has grown its earnings rapidly, up 70% 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Shanxi Coal International Energy GroupLtd has lifted its dividend by approximately 29% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Shanxi Coal International Energy GroupLtd for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, Shanxi Coal International Energy GroupLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Shanxi Coal International Energy GroupLtd for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Shanxi Coal International Energy GroupLtd 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.