Qingdao Yunlu Advanced Materials Technology Co., Ltd. (SHSE:688190) stock is about to trade ex-dividend in 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Qingdao Yunlu Advanced Materials Technology's shares before the 6th of June to receive the dividend, which will be paid on the 6th of June.

The company's next dividend payment will be CN¥0.85 per share. Last year, in total, the company distributed CN¥0.85 to shareholders. Calculating the last year's worth of payments shows that Qingdao Yunlu Advanced Materials Technology has a trailing yield of 1.1% on the current share price of CN¥80.71. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Qingdao Yunlu Advanced Materials Technology's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Qingdao Yunlu Advanced Materials Technology generated enough free cash flow to afford its dividend. It paid out 102% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Qingdao Yunlu Advanced Materials Technology paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Qingdao Yunlu Advanced Materials Technology's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. That's why it's comforting to see Qingdao Yunlu Advanced Materials Technology's earnings have been skyrocketing, up 21% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past two years, Qingdao Yunlu Advanced Materials Technology has increased its dividend at approximately 60% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Qingdao Yunlu Advanced Materials Technology worth buying for its dividend? We like that Qingdao Yunlu Advanced Materials Technology has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 1 warning sign for Qingdao Yunlu Advanced Materials Technology you should be aware of.

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.