It looks like Zhejiang XCC Group Co.,Ltd (SHSE:603667) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Zhejiang XCC GroupLtd investors that purchase the stock on or after the 13th of June will not receive the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be CN¥0.18 per share, and in the last 12 months, the company paid a total of CN¥0.18 per share. Based on the last year's worth of payments, Zhejiang XCC GroupLtd stock has a trailing yield of around 1.0% on the current share price of CN¥18.22. If you buy this business for its dividend, you should have an idea of whether Zhejiang XCC GroupLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Zhejiang XCC GroupLtd's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Zhejiang XCC GroupLtd generated enough free cash flow to afford its dividend. It paid out 109% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Zhejiang XCC GroupLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Zhejiang XCC GroupLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Zhejiang XCC GroupLtd's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

We'd also point out that Zhejiang XCC GroupLtd issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Zhejiang XCC GroupLtd has delivered 6.6% dividend growth per year on average over the past seven years.

The Bottom Line

Is Zhejiang XCC GroupLtd an attractive dividend stock, or better left on the shelf? It's disappointing to see earnings per share have fallen slightly, even though Zhejiang XCC GroupLtd 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 that we think Zhejiang XCC GroupLtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Zhejiang XCC GroupLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 3 warning signs with Zhejiang XCC GroupLtd and understanding them should be part of your investment process.

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.