Readers hoping to buy Yantai Changyu Pioneer Wine Company Limited (SZSE:000869) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. Thus, you can purchase Yantai Changyu Pioneer Wine's shares before the 17th of June in order to receive the dividend, which the company will pay on the 17th of June.

The company's next dividend payment will be CN¥0.50422 per share, and in the last 12 months, the company paid a total of CN¥0.50 per share. Calculating the last year's worth of payments shows that Yantai Changyu Pioneer Wine has a trailing yield of 2.2% on the current share price of CN¥23.07. If you buy this business for its dividend, you should have an idea of whether Yantai Changyu Pioneer Wine's dividend is reliable and sustainable. So we need to investigate whether Yantai Changyu Pioneer Wine can afford its dividend, and if the dividend could grow.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 83% 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. 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. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Yantai Changyu Pioneer Wine'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 falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Yantai Changyu Pioneer Wine's earnings per share have fallen at approximately 17% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Yantai Changyu Pioneer Wine's dividend payments per share have declined at 7.6% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has Yantai Changyu Pioneer Wine got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's hard to get excited about Yantai Changyu Pioneer Wine from a dividend perspective.

However if you're still interested in Yantai Changyu Pioneer Wine as a potential investment, you should definitely consider some of the risks involved with Yantai Changyu Pioneer Wine. Case in point: We've spotted 1 warning sign for Yantai Changyu Pioneer Wine 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.