Jiangsu NanFang Precision Co.,Ltd. (SZSE:002553) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Jiangsu NanFang PrecisionLtd's shares before the 24th of May in order to receive the dividend, which the company will pay on the 24th of May.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.10 to shareholders. Looking at the last 12 months of distributions, Jiangsu NanFang PrecisionLtd has a trailing yield of approximately 0.9% on its current stock price of CN¥10.75. If you buy this business for its dividend, you should have an idea of whether Jiangsu NanFang PrecisionLtd's dividend is reliable and sustainable. As a result, readers should always check whether Jiangsu NanFang PrecisionLtd 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 87% 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 concerned if earnings began to decline. 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 86% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 Jiangsu NanFang PrecisionLtd paid out over the last 12 months.

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. With that in mind, we're discomforted by Jiangsu NanFang PrecisionLtd's 15% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jiangsu NanFang PrecisionLtd has seen its dividend decline 1.2% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Is Jiangsu NanFang PrecisionLtd an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Jiangsu NanFang PrecisionLtd's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Jiangsu NanFang PrecisionLtd and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 4 warning signs we've spotted with Jiangsu NanFang PrecisionLtd (including 1 which makes us a bit uncomfortable).

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.