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 Hangzhou Tianyuan Pet Products CO., LTD (SZSE:301335) is about to go ex-dividend in just four days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Hangzhou Tianyuan Pet Products' shares before the 15th of October in order to receive the dividend, which the company will pay on the 15th of October.

The company's next dividend payment will be CN¥0.10 per share, on the back of last year when the company paid a total of CN¥0.35 to shareholders. Calculating the last year's worth of payments shows that Hangzhou Tianyuan Pet Products has a trailing yield of 1.0% on the current share price of CN¥19.67. If you buy this business for its dividend, you should have an idea of whether Hangzhou Tianyuan Pet Products's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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. Hangzhou Tianyuan Pet Products paid out 72% of its earnings to investors last year, a normal payout level for most businesses. 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 33% of its free cash flow in the past year.

It's positive to see that Hangzhou Tianyuan Pet Products'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 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 Hangzhou Tianyuan Pet Products's earnings per share have dropped 8.2% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Unfortunately Hangzhou Tianyuan Pet Products has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Is Hangzhou Tianyuan Pet Products an attractive dividend stock, or better left on the shelf? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Hangzhou Tianyuan Pet Products looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you're not too concerned about Hangzhou Tianyuan Pet Products's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 3 warning signs for Hangzhou Tianyuan Pet Products that we recommend you consider before investing in the business.

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.