Nanjing Public Utilities Development Co., Ltd. (SZSE:000421) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Nanjing Public Utilities Development's shares on or after the 28th of June, you won't be eligible to receive the dividend, when it is paid on the 28th of June.

The company's next dividend payment will be CN¥0.10 per share. Last year, in total, the company distributed CN¥0.10 to shareholders. Last year's total dividend payments show that Nanjing Public Utilities Development has a trailing yield of 2.2% on the current share price of CN¥4.49. If you buy this business for its dividend, you should have an idea of whether Nanjing Public Utilities Development's dividend is reliable and sustainable. So we need to investigate whether Nanjing Public Utilities Development can afford its dividend, and if the dividend could grow.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Nanjing Public Utilities Development paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

Click here to see how much of its profit Nanjing Public Utilities Development paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Nanjing Public Utilities Development was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Nanjing Public Utilities Development has lifted its dividend by approximately 7.2% a year on average.

We update our analysis on Nanjing Public Utilities Development every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Nanjing Public Utilities Development? 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." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Nanjing Public Utilities Development.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Nanjing Public Utilities Development. Every company has risks, and we've spotted 4 warning signs for Nanjing Public Utilities Development (of which 2 are concerning!) you should know about.

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.

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