Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jiamei Food Packaging (Chuzhou) Co.,Ltd (SZSE:002969) is about to trade ex-dividend in the next four days. 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. 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. This means that investors who purchase Jiamei Food Packaging (Chuzhou)Ltd's shares on or after the 28th of May will not receive the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be CN¥0.03 per share, and in the last 12 months, the company paid a total of CN¥0.03 per share. Based on the last year's worth of payments, Jiamei Food Packaging (Chuzhou)Ltd has a trailing yield of 0.9% on the current stock price of CN¥3.41. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Jiamei Food Packaging (Chuzhou)Ltd has a low and conservative payout ratio of just 16% of its income after tax. A useful secondary check can be to evaluate whether Jiamei Food Packaging (Chuzhou)Ltd generated enough free cash flow to afford its dividend. It paid out 102% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While Jiamei Food Packaging (Chuzhou)Ltd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Jiamei Food Packaging (Chuzhou)Ltd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Jiamei Food Packaging (Chuzhou)Ltd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Jiamei Food Packaging (Chuzhou)Ltd's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last four years, Jiamei Food Packaging (Chuzhou)Ltd has lifted its dividend by approximately 12% a year on average.

To Sum It Up

Should investors buy Jiamei Food Packaging (Chuzhou)Ltd for the upcoming dividend? It's disappointing to see earnings per share have fallen slightly, even though Jiamei Food Packaging (Chuzhou)Ltd is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Jiamei Food Packaging (Chuzhou)Ltd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for Jiamei Food Packaging (Chuzhou)Ltd that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.