Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jiajiayue Group Co., Ltd. (SHSE:603708) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Jiajiayue Group's shares on or after the 15th of November will not receive the dividend, which will be paid on the 15th of November.

The company's next dividend payment will be CN¥0.11 per share. Last year, in total, the company distributed CN¥0.22 to shareholders. Based on the last year's worth of payments, Jiajiayue Group stock has a trailing yield of around 1.9% on the current share price of CN¥11.35. 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 Jiajiayue Group can afford its dividend, and if the dividend could grow.

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. Jiajiayue Group distributed an unsustainably high 168% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

It's good to see that while Jiajiayue Group'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. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Jiajiayue Group's 24% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jiajiayue Group's dividend payments per share have declined at 2.7% per year on average over the past seven years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Jiajiayue Group worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out 168% 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 Jiajiayue Group's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not that we think Jiajiayue Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Jiajiayue Group and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for Jiajiayue Group that we recommend you consider before investing in the business.

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.