It looks like Bestsun Energy Co., Ltd. (SHSE:600681) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Bestsun Energy's shares on or after the 25th of April will not receive the dividend, which will be paid on the 25th of April.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.30 to shareholders. Last year's total dividend payments show that Bestsun Energy has a trailing yield of 6.9% on the current share price of CN¥4.33. If you buy this business for its dividend, you should have an idea of whether Bestsun Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Bestsun Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Bestsun Energy paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out an unsustainably high 228% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Bestsun Energy intends to continue funding this dividend, or if it could be forced to cut the payment.

Cash is slightly more important than profit from a dividend perspective, but given Bestsun Energy'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 Bestsun Energy paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Bestsun Energy's earnings per share have dropped 14% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bestsun Energy has seen its dividend decline 1.4% per annum on average over the past five years, which is not great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid Bestsun Energy? Not only are earnings per share declining, but Bestsun Energy is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Bestsun Energy.

Although, if you're still interested in Bestsun Energy and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 3 warning signs we've spotted with Bestsun Energy (including 2 which don't sit too well with us).

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.