Shanxi Xinghuacun Fen Wine Factory Co.,Ltd. (SHSE:600809) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Shanxi Xinghuacun Fen Wine FactoryLtd investors that purchase the stock on or after the 5th of July will not receive the dividend, which will be paid on the 5th of July.

The company's next dividend payment will be CN¥4.37 per share, and in the last 12 months, the company paid a total of CN¥4.37 per share. Looking at the last 12 months of distributions, Shanxi Xinghuacun Fen Wine FactoryLtd has a trailing yield of approximately 2.1% on its current stock price of CN¥207.06. If you buy this business for its dividend, you should have an idea of whether Shanxi Xinghuacun Fen Wine FactoryLtd's dividend is reliable and sustainable. As a result, readers should always check whether Shanxi Xinghuacun Fen Wine FactoryLtd has been able to grow its dividends, or if the dividend might be cut.

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. That's why it's good to see Shanxi Xinghuacun Fen Wine FactoryLtd paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Shanxi Xinghuacun Fen Wine FactoryLtd generated enough free cash flow to afford its dividend. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Shanxi Xinghuacun Fen Wine FactoryLtd'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?

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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Shanxi Xinghuacun Fen Wine FactoryLtd's earnings have been skyrocketing, up 51% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Shanxi Xinghuacun Fen Wine FactoryLtd has increased its dividend at approximately 33% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Shanxi Xinghuacun Fen Wine FactoryLtd? Shanxi Xinghuacun Fen Wine FactoryLtd has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Shanxi Xinghuacun Fen Wine FactoryLtd is facing. Our analysis shows 1 warning sign for Shanxi Xinghuacun Fen Wine FactoryLtd and you should be aware of it before buying any 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.

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