Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shanghai Lujiazui Finance & Trade Zone Development Co.,Ltd. (SHSE:600663) is about to trade 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 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. Thus, you can purchase Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's shares before the 3rd of June in order to receive the dividend, which the company will pay on the 3rd of June.

The company's next dividend payment will be CN¥0.114 per share. Last year, in total, the company distributed CN¥0.11 to shareholders. Based on the last year's worth of payments, Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd has a trailing yield of 1.1% on the current stock price of CN¥10.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd is paying out an acceptable 51% of its profit, a common payout level among most companies. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's earnings per share have dropped 23% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd has increased its dividend at approximately 0.9% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd, it's worth knowing the risks this business faces. To that end, you should learn about the 4 warning signs we've spotted with Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd (including 2 which can't be ignored).

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.