It looks like Jiangsu ChengXing Phosph-Chemicals Co., Ltd. (SHSE:600078) is about to go ex-dividend in the next 4 days. 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. This means that investors who purchase Jiangsu ChengXing Phosph-Chemicals' shares on or after the 10th of July will not receive the dividend, which will be paid on the 10th of July.

The company's upcoming dividend is CN¥0.031 a share, following on from the last 12 months, when the company distributed a total of CN¥0.031 per share to shareholders. Looking at the last 12 months of distributions, Jiangsu ChengXing Phosph-Chemicals has a trailing yield of approximately 0.5% on its current stock price of CN¥6.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Jiangsu ChengXing Phosph-Chemicals has been able to grow its dividends, or if the dividend might be cut.

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. Jiangsu ChengXing Phosph-Chemicals reported a loss last year, so it's not great to see that it has continued paying a dividend. 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. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see how much of its profit Jiangsu ChengXing Phosph-Chemicals 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Jiangsu ChengXing Phosph-Chemicals reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Jiangsu ChengXing Phosph-Chemicals has lifted its dividend by approximately 7.5% 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.

Remember, you can always get a snapshot of Jiangsu ChengXing Phosph-Chemicals's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Has Jiangsu ChengXing Phosph-Chemicals got what it takes to maintain its dividend payments? 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." In summary, while it has some positive characteristics, we're not inclined to race out and buy Jiangsu ChengXing Phosph-Chemicals today.

So while Jiangsu ChengXing Phosph-Chemicals looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Jiangsu ChengXing Phosph-Chemicals has 1 warning sign we think 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.

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