It looks like Shandong Nanshan Aluminium Co.,Ltd. (SHSE:600219) is about to go ex-dividend in the next 3 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. Therefore, if you purchase Shandong Nanshan AluminiumLtd's shares on or after the 11th of October, you won't be eligible to receive the dividend, when it is paid on the 11th of October.

The company's next dividend payment will be CN¥0.04 per share, on the back of last year when the company paid a total of CN¥0.08 to shareholders. Looking at the last 12 months of distributions, Shandong Nanshan AluminiumLtd has a trailing yield of approximately 1.8% on its current stock price of CN¥4.38. If you buy this business for its dividend, you should have an idea of whether Shandong Nanshan AluminiumLtd's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. That's why it's good to see Shandong Nanshan AluminiumLtd paying out a modest 42% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

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. For this reason, we're glad to see Shandong Nanshan AluminiumLtd's earnings per share have risen 20% per annum over the last five years. Shandong Nanshan AluminiumLtd is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Shandong Nanshan AluminiumLtd has lifted its dividend by approximately 2.9% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Has Shandong Nanshan AluminiumLtd got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Shandong Nanshan AluminiumLtd paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Shandong Nanshan AluminiumLtd, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Shandong Nanshan AluminiumLtd and understanding them should be part of your investment process.

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.