Chengdu Fusen Noble-House Industrial Co.,Ltd. (SZSE:002818) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Chengdu Fusen Noble-House IndustrialLtd investors that purchase the stock on or after the 14th of May will not receive the dividend, which will be paid on the 14th of May.

The company's next dividend payment will be CN¥0.68 per share, and in the last 12 months, the company paid a total of CN¥1.08 per share. Based on the last year's worth of payments, Chengdu Fusen Noble-House IndustrialLtd stock has a trailing yield of around 7.5% on the current share price of CN¥14.37. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year Chengdu Fusen Noble-House IndustrialLtd paid out 100% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Chengdu Fusen Noble-House IndustrialLtd generated enough free cash flow to afford its dividend. Chengdu Fusen Noble-House IndustrialLtd paid out more free cash flow than it generated - 177%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Chengdu Fusen Noble-House IndustrialLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

As Chengdu Fusen Noble-House IndustrialLtd's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Chengdu Fusen Noble-House IndustrialLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Chengdu Fusen Noble-House IndustrialLtd's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Minimal earnings growth, combined with concerningly high payout ratios suggests that Chengdu Fusen Noble-House IndustrialLtd is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chengdu Fusen Noble-House IndustrialLtd has delivered 20% dividend growth per year on average over the past seven years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Chengdu Fusen Noble-House IndustrialLtd? Chengdu Fusen Noble-House IndustrialLtd is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. Bottom line: Chengdu Fusen Noble-House IndustrialLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Chengdu Fusen Noble-House IndustrialLtd don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for Chengdu Fusen Noble-House IndustrialLtd you should be aware of.

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.