It looks like Suzhou Weizhixiang Food Co., Ltd. (SHSE:605089) is about to go ex-dividend in the next 2 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. Therefore, if you purchase Suzhou Weizhixiang Food's shares on or after the 14th of June, you won't be eligible to receive the dividend, when it is paid on the 14th of June.

The company's next dividend payment will be CN¥0.70 per share, on the back of last year when the company paid a total of CN¥0.70 to shareholders. Based on the last year's worth of payments, Suzhou Weizhixiang Food has a trailing yield of 2.9% on the current stock price of CN¥24.13. 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 Suzhou Weizhixiang Food 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. Its dividend payout ratio is 81% 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. We'd be worried about the risk of a drop in earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Suzhou Weizhixiang Food'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Suzhou Weizhixiang Food earnings per share are up 4.6% per annum over the last five years. A high payout ratio of 81% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Suzhou Weizhixiang Food could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Suzhou Weizhixiang Food's dividend payments per share have declined at 1.7% per year on average over the past two years, which is uninspiring.

Final Takeaway

Is Suzhou Weizhixiang Food an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Suzhou Weizhixiang Food paid out a bit over half of its earnings and free cash flow last year. To summarise, Suzhou Weizhixiang Food looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that being said, if dividends aren't your biggest concern with Suzhou Weizhixiang Food, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign for Suzhou Weizhixiang Food you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.