Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shandong Bohui Paper Industry Co.,Ltd. (SHSE:600966) is about to trade ex-dividend in the next 2 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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, Shandong Bohui Paper IndustryLtd investors that purchase the stock on or after the 3rd of July will not receive the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be CN¥0.02941 per share. Last year, in total, the company distributed CN¥0.018 to shareholders. Calculating the last year's worth of payments shows that Shandong Bohui Paper IndustryLtd has a trailing yield of 0.4% on the current share price of CN¥4.78. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Shandong Bohui Paper IndustryLtd can afford its dividend, and if the dividend could grow.

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. Shandong Bohui Paper IndustryLtd lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. A useful secondary check can be to evaluate whether Shandong Bohui Paper IndustryLtd generated enough free cash flow to afford its dividend. Fortunately, it paid out only 26% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Shandong Bohui Paper IndustryLtd's earnings per share have fallen at approximately 5.1% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Shandong Bohui Paper IndustryLtd also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shandong Bohui Paper IndustryLtd's dividend payments per share have declined at 2.5% per year on average over the past seven years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Has Shandong Bohui Paper IndustryLtd got what it takes to maintain its dividend payments? It's not a great combination to see a company with earnings in decline and paying out -4.9% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Shandong Bohui Paper IndustryLtd.

With that being said, if you're still considering Shandong Bohui Paper IndustryLtd as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for Shandong Bohui Paper IndustryLtd you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com