Readers hoping to buy Wuxi Delinhai Environmental Technology Co.,Ltd (SHSE:688069) 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 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. Therefore, if you purchase Wuxi Delinhai Environmental TechnologyLtd's shares on or after the 10th of September, you won't be eligible to receive the dividend, when it is paid on the 10th of September.

The company's next dividend payment will be CN¥0.22 per share, and in the last 12 months, the company paid a total of CN¥0.44 per share. Based on the last year's worth of payments, Wuxi Delinhai Environmental TechnologyLtd has a trailing yield of 3.2% on the current stock price of CN¥13.89. 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 investigate whether Wuxi Delinhai Environmental TechnologyLtd 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. Wuxi Delinhai Environmental TechnologyLtd paid out 140% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Wuxi Delinhai Environmental TechnologyLtd generated enough free cash flow to afford its dividend. It paid out 1.8% of its free cash flow as dividends last year, which is conservatively low.

It's good to see that while Wuxi Delinhai Environmental TechnologyLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Wuxi Delinhai Environmental TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Wuxi Delinhai Environmental TechnologyLtd's earnings per share have plummeted approximately 30% a year over the previous five years.

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, Wuxi Delinhai Environmental TechnologyLtd has lifted its dividend by approximately 1.9% a year on average.

The Bottom Line

Is Wuxi Delinhai Environmental TechnologyLtd worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out 140% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Wuxi Delinhai Environmental TechnologyLtd's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Wuxi Delinhai Environmental TechnologyLtd.

Although, if you're still interested in Wuxi Delinhai Environmental TechnologyLtd and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 2 warning signs for Wuxi Delinhai Environmental TechnologyLtd (1 is a bit unpleasant) you should be aware of.

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.