Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Shandong Kaisheng New Materials Co.,Ltd. (SZSE:301069) is about to go ex-dividend in just two days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Shandong Kaisheng New MaterialsLtd's shares before the 21st of November in order to be eligible for the dividend, which will be paid on the 21st of November.

The company's next dividend payment will be CN¥0.05 per share, on the back of last year when the company paid a total of CN¥0.15 to shareholders. Looking at the last 12 months of distributions, Shandong Kaisheng New MaterialsLtd has a trailing yield of approximately 1.0% on its current stock price of CN¥14.57. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Shandong Kaisheng New MaterialsLtd has been able to grow its dividends, or if the dividend might be cut.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 82% 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. A useful secondary check can be to evaluate whether Shandong Kaisheng New MaterialsLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 how much of its profit Shandong Kaisheng New MaterialsLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Shandong Kaisheng New MaterialsLtd's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shandong Kaisheng New MaterialsLtd's dividend payments per share have declined at 16% per year on average over the past three years, which is uninspiring.

The Bottom Line

Is Shandong Kaisheng New MaterialsLtd an attractive dividend stock, or better left on the shelf? Shandong Kaisheng New MaterialsLtd has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Shandong Kaisheng New MaterialsLtd don't faze you, it's worth being mindful of the risks involved with this business. Be aware that Shandong Kaisheng New MaterialsLtd is showing 3 warning signs in our investment analysis, and 1 of those is significant...

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.