Readers hoping to buy Shanghai Lujiazui Finance & Trade Zone Development Co.,Ltd. (SHSE:600663) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Thus, you can purchase Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's shares before the 12th of December in order to receive the dividend, which the company will pay on the 12th of December.

The company's next dividend payment will be CN¥0.06288 per share. Last year, in total, the company distributed CN¥0.11 to shareholders. Last year's total dividend payments show that Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd has a trailing yield of 1.1% on the current share price of CN¥10.29. If you buy this business for its dividend, you should have an idea of whether Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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. Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd paid out 53% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd'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?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's earnings per share have fallen at approximately 24% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd has increased its dividend at approximately 0.9% a year on average.

To Sum It Up

Has Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd.

Although, if you're still interested in Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 4 warning signs for Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd (2 are potentially serious!) that you ought to be aware of before buying the 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.