Readers hoping to buy DeHua TB New Decoration Material Co.,Ltd (SZSE:002043) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Meaning, you will need to purchase DeHua TB New Decoration MaterialLtd's shares before the 25th of September to receive the dividend, which will be paid on the 25th of September.

The company's next dividend payment will be CN¥0.28 per share. Last year, in total, the company distributed CN¥0.55 to shareholders. Based on the last year's worth of payments, DeHua TB New Decoration MaterialLtd has a trailing yield of 5.7% on the current stock price of CN¥9.85. If you buy this business for its dividend, you should have an idea of whether DeHua TB New Decoration MaterialLtd's dividend is reliable and sustainable. So we need to investigate whether DeHua TB New Decoration MaterialLtd can afford its dividend, and if the dividend could grow.

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. Last year, DeHua TB New Decoration MaterialLtd paid out 101% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Fortunately, it paid out only 35% of its free cash flow in the past year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and DeHua TB New Decoration MaterialLtd fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, DeHua TB New Decoration MaterialLtd's earnings per share have been growing at 14% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. DeHua TB New Decoration MaterialLtd has delivered an average of 39% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is DeHua TB New Decoration MaterialLtd worth buying for its dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why DeHua TB New Decoration MaterialLtd is paying out so much of its profit. Overall, it's hard to get excited about DeHua TB New Decoration MaterialLtd from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for DeHua TB New Decoration MaterialLtd that we recommend you consider before investing in the business.

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