It looks like Jiangsu Yanghe Distillery Co., Ltd. (SZSE:002304) is about to go ex-dividend in the next four 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. Accordingly, Jiangsu Yanghe Distillery investors that purchase the stock on or after the 26th of June will not receive the dividend, which will be paid on the 26th of June.

The company's next dividend payment will be CN¥4.66 per share, on the back of last year when the company paid a total of CN¥4.66 to shareholders. Based on the last year's worth of payments, Jiangsu Yanghe Distillery has a trailing yield of 5.5% on the current stock price of CN¥85.25. If you buy this business for its dividend, you should have an idea of whether Jiangsu Yanghe Distillery's dividend is reliable and sustainable. So we need to investigate whether Jiangsu Yanghe Distillery can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Jiangsu Yanghe Distillery is paying out an acceptable 68% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Jiangsu Yanghe Distillery generated enough free cash flow to afford its dividend. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Jiangsu Yanghe Distillery'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Jiangsu Yanghe Distillery earnings per share are up 4.9% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Jiangsu Yanghe Distillery has lifted its dividend by approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Jiangsu Yanghe Distillery an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

Curious what other investors think of Jiangsu Yanghe Distillery? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

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