Readers hoping to buy Lanzhou Lishang Guochao Industrial Group Co.,Ltd (SHSE:600738) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Lanzhou Lishang Guochao Industrial GroupLtd's shares on or after the 27th of June, you won't be eligible to receive the dividend, when it is paid on the 27th of June.

The company's next dividend payment will be CN¥0.04 per share. Last year, in total, the company distributed CN¥0.04 to shareholders. Based on the last year's worth of payments, Lanzhou Lishang Guochao Industrial GroupLtd has a trailing yield of 1.1% on the current stock price of CN¥3.69. If you buy this business for its dividend, you should have an idea of whether Lanzhou Lishang Guochao Industrial GroupLtd's dividend is reliable and sustainable. So we need to investigate whether Lanzhou Lishang Guochao Industrial GroupLtd can afford its dividend, and if the dividend could grow.

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. Lanzhou Lishang Guochao Industrial GroupLtd has a low and conservative payout ratio of just 24% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last 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 Lanzhou Lishang Guochao Industrial GroupLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Lanzhou Lishang Guochao Industrial GroupLtd's earnings per share have plummeted approximately 40% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Lanzhou Lishang Guochao Industrial GroupLtd's dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring. 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.

To Sum It Up

Has Lanzhou Lishang Guochao Industrial GroupLtd 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. All things considered, we are not particularly enthused about Lanzhou Lishang Guochao Industrial GroupLtd from a dividend perspective.

So while Lanzhou Lishang Guochao Industrial GroupLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Lanzhou Lishang Guochao Industrial GroupLtd that you should be aware of before investing in their shares.

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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