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 AUPU Home Style Corporation Limited (SHSE:603551) is about to go ex-dividend in just three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase AUPU Home Style's shares before the 4th of June in order to receive the dividend, which the company will pay on the 4th of June.

The company's upcoming dividend is CN¥0.80 a share, following on from the last 12 months, when the company distributed a total of CN¥0.80 per share to shareholders. Calculating the last year's worth of payments shows that AUPU Home Style has a trailing yield of 6.8% on the current share price of CN¥11.85. 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 check whether the dividend payments are covered, and if earnings are 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. Last year, AUPU Home Style paid out 99% 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. A useful secondary check can be to evaluate whether AUPU Home Style generated enough free cash flow to afford its dividend. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while AUPU Home Style's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 AUPU Home Style's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, four years ago, AUPU Home Style has lifted its dividend by approximately 25% a year on average.

The Bottom Line

Should investors buy AUPU Home Style for the upcoming dividend? The company has not generated any growth in earnings per share over the four-year timeframe we measured. Plus, AUPU Home Style's paying out a high percentage of its earnings and more than half its cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in AUPU Home Style and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 1 warning sign for AUPU Home Style that you should be aware of before investing in their shares.

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.