Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that MYS Group Co., Ltd. (SZSE:002303) is about to go ex-dividend in just two 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase MYS Group's shares before the 8th of July in order to receive the dividend, which the company will pay on the 8th of July.

The company's upcoming dividend is CN¥0.13 a share, following on from the last 12 months, when the company distributed a total of CN¥0.13 per share to shareholders. Based on the last year's worth of payments, MYS Group stock has a trailing yield of around 5.1% on the current share price of CN¥2.54. If you buy this business for its dividend, you should have an idea of whether MYS Group's dividend is reliable and sustainable. As a result, readers should always check whether MYS Group 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. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.

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 MYS Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see MYS Group's earnings per share have dropped 11% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, MYS Group has lifted its dividend by approximately 21% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. MYS Group is already paying out 87% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Is MYS Group an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's hard to get excited about MYS Group from a dividend perspective.

So if you want to do more digging on MYS Group, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 2 warning signs for MYS Group (of which 1 is potentially serious!) you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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