Readers hoping to buy Golden Resources Development International Limited (HKG:677) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Golden Resources Development International investors that purchase the stock on or after the 13th of December will not receive the dividend, which will be paid on the 17th of January.

The company's upcoming dividend is HK$0.011 a share, following on from the last 12 months, when the company distributed a total of HK$0.023 per share to shareholders. Looking at the last 12 months of distributions, Golden Resources Development International has a trailing yield of approximately 5.9% on its current stock price of HK$0.39. If you buy this business for its dividend, you should have an idea of whether Golden Resources Development International's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. Golden Resources Development International distributed an unsustainably high 189% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Golden Resources Development International 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. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Golden Resources Development International 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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Golden Resources Development International's earnings have been skyrocketing, up 35% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Golden Resources Development International's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Has Golden Resources Development International got what it takes to maintain its dividend payments? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Golden Resources Development International's paying out such a high percentage of its profit. In summary, it's hard to get excited about Golden Resources Development International from a dividend perspective.

In light of that, while Golden Resources Development International has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 4 warning signs for Golden Resources Development International you should be aware of.

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.