Jiangsu Libert INC. (SHSE:605167) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Jiangsu Libert's shares before the 7th of June to receive the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be CN¥0.043 per share, and in the last 12 months, the company paid a total of CN¥0.043 per share. Calculating the last year's worth of payments shows that Jiangsu Libert has a trailing yield of 0.5% on the current share price of CN¥8.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Jiangsu Libert is paying out just 9.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Jiangsu Libert generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.

It's positive to see that Jiangsu Libert'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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Jiangsu Libert's earnings per share have been growing at 12% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jiangsu Libert's dividend payments per share have declined at 27% per year on average over the past three years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Should investors buy Jiangsu Libert for the upcoming dividend? Jiangsu Libert has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past three years, but the conservative payout ratio makes the current dividend look sustainable. Jiangsu Libert looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Wondering what the future holds for Jiangsu Libert? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.