Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jiangsu Wujin Stainless Steel Pipe Group CO.,LTD. (SHSE:603878) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Accordingly, Jiangsu Wujin Stainless Steel Pipe GroupLTD investors that purchase the stock on or after the 17th of June will not receive the dividend, which will be paid on the 17th of June.

The company's next dividend payment will be CN¥0.53 per share, on the back of last year when the company paid a total of CN¥0.53 to shareholders. Based on the last year's worth of payments, Jiangsu Wujin Stainless Steel Pipe GroupLTD stock has a trailing yield of around 6.4% 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. So we need to check whether the dividend payments are covered, and if earnings are 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. It paid out 86% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Jiangsu Wujin Stainless Steel Pipe GroupLTD generated enough free cash flow to afford its dividend. It paid out more than half (73%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Jiangsu Wujin Stainless Steel Pipe GroupLTD's earnings per share have been growing at 12% a year for the past five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

We'd also point out that Jiangsu Wujin Stainless Steel Pipe GroupLTD issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Jiangsu Wujin Stainless Steel Pipe GroupLTD has delivered 35% dividend growth per year on average over the past seven years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Jiangsu Wujin Stainless Steel Pipe GroupLTD? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Jiangsu Wujin Stainless Steel Pipe GroupLTD's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 86% and 73% respectively. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in Jiangsu Wujin Stainless Steel Pipe GroupLTD for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Jiangsu Wujin Stainless Steel Pipe GroupLTD that you should be aware of before investing in their shares.

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.