It looks like Dynagreen Environmental Protection Group Co., Ltd. (HKG:1330) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Dynagreen Environmental Protection Group investors that purchase the stock on or after the 26th of September will not receive the dividend, which will be paid on the 20th of November.

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¥0.20 to shareholders. Looking at the last 12 months of distributions, Dynagreen Environmental Protection Group has a trailing yield of approximately 6.9% on its current stock price of HK$3.19. 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 investigate whether Dynagreen Environmental Protection Group can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dynagreen Environmental Protection Group is paying out an acceptable 61% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Dynagreen Environmental Protection Group generated enough free cash flow to afford its dividend. Dynagreen Environmental Protection Group paid out more free cash flow than it generated - 116%, 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.

While Dynagreen Environmental Protection Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Dynagreen Environmental Protection Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Dynagreen Environmental Protection Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Dynagreen Environmental Protection Group, with earnings per share up 4.4% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past eight years, Dynagreen Environmental Protection Group has increased its dividend at approximately 27% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Dynagreen Environmental Protection Group for the upcoming dividend? Earnings per share have grown somewhat, although Dynagreen Environmental Protection Group paid out over half its profits and the dividend was not well covered by free cash flow. It's not that we think Dynagreen Environmental Protection Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Dynagreen Environmental Protection Group as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Dynagreen Environmental Protection Group is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious...

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.