Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Guangdong Jushen Logistics Co., Ltd. (SZSE:001202) is about to trade ex-dividend in the next three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Guangdong Jushen Logistics' shares before the 27th of June to receive the dividend, which will be paid on the 27th of June.

The company's upcoming dividend is CN¥0.30 a share, following on from the last 12 months, when the company distributed a total of CN¥0.30 per share to shareholders. Last year's total dividend payments show that Guangdong Jushen Logistics has a trailing yield of 2.7% on the current share price of CN¥11.20. If you buy this business for its dividend, you should have an idea of whether Guangdong Jushen Logistics's dividend is reliable and sustainable. 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. Guangdong Jushen Logistics paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Guangdong Jushen Logistics generated enough free cash flow to afford its dividend. Fortunately, it paid out only 48% of its free cash flow in the past year.

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 how much of its profit Guangdong Jushen Logistics 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Guangdong Jushen Logistics earnings per share are up 4.6% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Guangdong Jushen Logistics's dividend payments per share have declined at 29% per year on average over the past two years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is Guangdong Jushen Logistics an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Guangdong Jushen Logistics paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 2 warning signs we've spotted with Guangdong Jushen Logistics (including 1 which is significant).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com