Shanghai Shine-Link International Logistics Co., Ltd. (SHSE:603648) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Shanghai Shine-Link International Logistics' shares on or after the 12th of August will not receive the dividend, which will be paid on the 12th of August.

The company's next dividend payment will be CN¥0.35 per share, and in the last 12 months, the company paid a total of CN¥0.35 per share. Based on the last year's worth of payments, Shanghai Shine-Link International Logistics stock has a trailing yield of around 4.3% on the current share price of CN¥8.23. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shanghai Shine-Link International Logistics has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 70% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Shanghai Shine-Link International Logistics's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Shanghai Shine-Link International Logistics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 not encouraging to see that Shanghai Shine-Link International Logistics's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 86% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Shanghai Shine-Link International Logistics could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Shanghai Shine-Link International Logistics has increased its dividend at approximately 15% a year on average.

To Sum It Up

Should investors buy Shanghai Shine-Link International Logistics for the upcoming dividend? Earnings per share have barely grown, and although Shanghai Shine-Link International Logistics paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. In summary, it's hard to get excited about Shanghai Shine-Link International Logistics from a dividend perspective.

If you're not too concerned about Shanghai Shine-Link International Logistics's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 1 warning sign for Shanghai Shine-Link International Logistics and you should be aware of this before buying any shares.

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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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