It looks like Jiangsu Newamstar Packaging Machinery Co.,Ltd (SZSE:300509) is about to go ex-dividend in the next four days. The ex-dividend date is one business day 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Jiangsu Newamstar Packaging MachineryLtd's shares before the 12th of June in order to be eligible for the dividend, which will be paid on the 12th of June.

The company's upcoming dividend is CN¥0.12 a share, following on from the last 12 months, when the company distributed a total of CN¥0.12 per share to shareholders. Based on the last year's worth of payments, Jiangsu Newamstar Packaging MachineryLtd has a trailing yield of 1.8% on the current stock price of CN¥6.71. If you buy this business for its dividend, you should have an idea of whether Jiangsu Newamstar Packaging MachineryLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Jiangsu Newamstar Packaging MachineryLtd

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. Last year, Jiangsu Newamstar Packaging MachineryLtd paid out 92% 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Jiangsu Newamstar Packaging MachineryLtd'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 Jiangsu Newamstar Packaging MachineryLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Jiangsu Newamstar Packaging MachineryLtd's 9.0% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jiangsu Newamstar Packaging MachineryLtd's dividend payments are broadly unchanged compared to where they were six years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

To Sum It Up

Is Jiangsu Newamstar Packaging MachineryLtd an attractive dividend stock, or better left on the shelf? Earnings per share have been in decline, which is not encouraging. What's more, Jiangsu Newamstar Packaging MachineryLtd is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not that we think Jiangsu Newamstar Packaging MachineryLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Jiangsu Newamstar Packaging MachineryLtd as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 3 warning signs with Jiangsu Newamstar Packaging MachineryLtd 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.