Jinhui Mining Incorporation Limited (SHSE:603132) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Jinhui Mining Incorporation's shares on or after the 7th of May, you won't be eligible to receive the dividend, when it is paid on the 7th of May.

The company's upcoming dividend is CN¥0.24 a share, following on from the last 12 months, when the company distributed a total of CN¥0.54 per share to shareholders. Based on the last year's worth of payments, Jinhui Mining Incorporation has a trailing yield of 3.9% on the current stock price of CN¥13.88. If you buy this business for its dividend, you should have an idea of whether Jinhui Mining Incorporation'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 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. Jinhui Mining Incorporation paid out 138% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Jinhui Mining Incorporation paid out more free cash flow than it generated - 183%, to be precise - last year, which we think is concerningly 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.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Jinhui Mining Incorporation's earnings have been skyrocketing, up 58% per annum for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we think is sustainable, based on current earnings. Generally, when a company is paying out more than it earned as dividends, it could signal either that the company is spending heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.

Given that Jinhui Mining Incorporation has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Has Jinhui Mining Incorporation got what it takes to maintain its dividend payments? While it's nice to see earnings per share growing, we're curious about how Jinhui Mining Incorporation intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Jinhui Mining Incorporation and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 2 warning signs with Jinhui Mining Incorporation (at least 1 which doesn't sit too well with us), and understanding these 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.