Tangshan Sanyou Chemical Industries Co.,Ltd (SHSE:600409) stock is about to trade ex-dividend in day or so. 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 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. Thus, you can purchase Tangshan Sanyou Chemical IndustriesLtd's shares before the 24th of June in order to receive the dividend, which the company will pay on the 24th of June.

The company's next dividend payment will be CN¥0.083 per share, on the back of last year when the company paid a total of CN¥0.083 to shareholders. Looking at the last 12 months of distributions, Tangshan Sanyou Chemical IndustriesLtd has a trailing yield of approximately 1.6% on its current stock price of CN¥5.13. If you buy this business for its dividend, you should have an idea of whether Tangshan Sanyou Chemical IndustriesLtd's dividend is reliable and sustainable. As a result, readers should always check whether Tangshan Sanyou Chemical IndustriesLtd has been able to grow its dividends, or if the dividend might be cut.

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. Tangshan Sanyou Chemical IndustriesLtd has a low and conservative payout ratio of just 23% of its income after tax. 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. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Tangshan Sanyou Chemical IndustriesLtd's earnings per share have dropped 14% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Tangshan Sanyou Chemical IndustriesLtd dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

To Sum It Up

Has Tangshan Sanyou Chemical IndustriesLtd got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tangshan Sanyou Chemical IndustriesLtd today.

In light of that, while Tangshan Sanyou Chemical IndustriesLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Tangshan Sanyou Chemical IndustriesLtd you should be aware of.

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.

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