It looks like Jiangsu Jujie Microfiber Technology Group Co., Ltd. (SZSE:300819) is about to go ex-dividend in the next 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Jiangsu Jujie Microfiber Technology Group investors that purchase the stock on or after the 6th of June will not receive the dividend, which will be paid on the 6th of June.

The company's next dividend payment will be CN¥0.30 per share. Last year, in total, the company distributed CN¥0.30 to shareholders. Based on the last year's worth of payments, Jiangsu Jujie Microfiber Technology Group has a trailing yield of 2.1% on the current stock price of CN¥14.56. If you buy this business for its dividend, you should have an idea of whether Jiangsu Jujie Microfiber Technology Group's dividend is reliable and sustainable. As a result, readers should always check whether Jiangsu Jujie Microfiber Technology Group has been able to grow its dividends, or if the dividend might be cut.

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. Jiangsu Jujie Microfiber Technology Group paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 135% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Jiangsu Jujie Microfiber Technology Group does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Jiangsu Jujie Microfiber Technology Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Jiangsu Jujie Microfiber Technology Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Jiangsu Jujie Microfiber Technology Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Jiangsu Jujie Microfiber Technology Group's earnings per share have been shrinking at 2.5% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Jiangsu Jujie Microfiber Technology Group has delivered an average of 14% per year annual increase in its dividend, based on the past three years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

From a dividend perspective, should investors buy or avoid Jiangsu Jujie Microfiber Technology Group? Jiangsu Jujie Microfiber Technology Group had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not that we think Jiangsu Jujie Microfiber Technology Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Jiangsu Jujie Microfiber Technology Group and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Jiangsu Jujie Microfiber Technology Group is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

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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.