It looks like Shanxi Guoxin Energy Corporation Limited (SHSE:600617) is about to go ex-dividend in the next 2 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Shanxi Guoxin Energy's shares before the 27th of June in order to be eligible for the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be CN¥0.145 per share, and in the last 12 months, the company paid a total of CN¥0.14 per share. Last year's total dividend payments show that Shanxi Guoxin Energy has a trailing yield of 3.8% on the current share price of CN¥3.82. If you buy this business for its dividend, you should have an idea of whether Shanxi Guoxin Energy's dividend is reliable and sustainable. As a result, readers should always check whether Shanxi Guoxin Energy has been able to grow its dividends, or if the dividend might be cut.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Shanxi Guoxin Energy paid out a disturbingly high 221% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Shanxi Guoxin Energy 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 how much of its profit Shanxi Guoxin Energy paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Shanxi Guoxin Energy, with earnings per share up 8.8% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shanxi Guoxin Energy's dividend payments per share have declined at 3.5% per year on average over the past nine years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Shanxi Guoxin Energy an attractive dividend stock, or better left on the shelf? While earnings per share have been growing slowly, Shanxi Guoxin Energy is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Shanxi Guoxin Energy as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 3 warning signs for Shanxi Guoxin Energy (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

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