It looks like Guangdong Topstrong Living Innovation and Integration Co., Ltd. (SZSE:300749) is about to go ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Guangdong Topstrong Living Innovation and Integration's shares before the 12th of June in order to receive the dividend, which the company will pay on the 12th of June.

The company's next dividend payment will be CN¥0.03 per share, on the back of last year when the company paid a total of CN¥0.03 to shareholders. Based on the last year's worth of payments, Guangdong Topstrong Living Innovation and Integration has a trailing yield of 0.6% on the current stock price of CN¥5.42. 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 investigate whether Guangdong Topstrong Living Innovation and Integration can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Guangdong Topstrong Living Innovation and Integration paid out 96% 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. 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. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Guangdong Topstrong Living Innovation and Integration's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit Guangdong Topstrong Living Innovation and Integration paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Guangdong Topstrong Living Innovation and Integration's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 43% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Guangdong Topstrong Living Innovation and Integration has seen its dividend decline 24% per annum on average over the past five years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is Guangdong Topstrong Living Innovation and Integration worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 96% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Guangdong Topstrong Living Innovation and Integration's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Guangdong Topstrong Living Innovation and Integration despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, Guangdong Topstrong Living Innovation and Integration has 4 warning signs (and 1 which is significant) we think you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.