Readers hoping to buy FuJian YanJing HuiQuan Brewery Co.,Ltd (SHSE:600573) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase FuJian YanJing HuiQuan BreweryLtd's shares on or after the 27th of June will not receive the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be CN¥0.06 per share, on the back of last year when the company paid a total of CN¥0.06 to shareholders. Calculating the last year's worth of payments shows that FuJian YanJing HuiQuan BreweryLtd has a trailing yield of 0.7% on the current share price of CN¥8.88. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are 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. FuJian YanJing HuiQuan BreweryLtd paid out a comfortable 29% of its profit last year. A useful secondary check can be to evaluate whether FuJian YanJing HuiQuan BreweryLtd generated enough free cash flow to afford its dividend. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.

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 FuJian YanJing HuiQuan BreweryLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see FuJian YanJing HuiQuan BreweryLtd has grown its earnings rapidly, up 23% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, FuJian YanJing HuiQuan BreweryLtd has increased its dividend at approximately 9.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid FuJian YanJing HuiQuan BreweryLtd? FuJian YanJing HuiQuan BreweryLtd has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

Curious about whether FuJian YanJing HuiQuan BreweryLtd has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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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