Readers hoping to buy Intco Recycling Resources Co., Ltd. (SHSE:688087) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Intco Recycling Resources' shares on or after the 17th of July, you won't be eligible to receive the dividend, when it is paid on the 17th of July.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.15 to shareholders. Based on the last year's worth of payments, Intco Recycling Resources has a trailing yield of 0.6% on the current stock price of CN¥26.79. If you buy this business for its dividend, you should have an idea of whether Intco Recycling Resources's dividend is reliable and sustainable. As a result, readers should always check whether Intco Recycling Resources has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Intco Recycling Resources is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 dividends equivalent to 440% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Intco Recycling Resources is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Intco Recycling Resources's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Intco Recycling Resources to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Intco Recycling Resources's earnings per share have risen 16% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Intco Recycling Resources has increased its dividend at approximately 2.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Intco Recycling Resources is keeping back more of its profits to grow the business.

The Bottom Line

Should investors buy Intco Recycling Resources for the upcoming dividend? We like that Intco Recycling Resources has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. To summarise, Intco Recycling Resources looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Wondering what the future holds for Intco Recycling Resources? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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

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