Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shanghai Jinfeng Wine Company Limited (SHSE:600616) is about to trade 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 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 Jinfeng Wine's shares before the 14th of June in order to receive the dividend, which the company will pay on the 14th of June.

The company's next dividend payment will be CN¥0.05 per share, and in the last 12 months, the company paid a total of CN¥0.05 per share. Last year's total dividend payments show that Shanghai Jinfeng Wine has a trailing yield of 1.0% on the current share price of CN¥5.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. Shanghai Jinfeng Wine lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see how much of its profit Shanghai Jinfeng Wine paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Shanghai Jinfeng Wine reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shanghai Jinfeng Wine's dividend payments per share have declined at 4.2% per year on average over the past 10 years, which is uninspiring.

Remember, you can always get a snapshot of Shanghai Jinfeng Wine's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Has Shanghai Jinfeng Wine got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." All things considered, we are not particularly enthused about Shanghai Jinfeng Wine from a dividend perspective.

So if you want to do more digging on Shanghai Jinfeng Wine, you'll find it worthwhile knowing the risks that this stock faces. For example - Shanghai Jinfeng Wine has 1 warning sign we think you should be aware of.

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.