It looks like LIAONING ENERGY INDUSTRY Co.,LTD (SHSE:600758) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase LIAONING ENERGY INDUSTRYLTD's shares before the 20th of December in order to receive the dividend, which the company will pay on the 20th of December.

The company's next dividend payment will be CN¥0.02 per share, and in the last 12 months, the company paid a total of CN¥0.04 per share. Calculating the last year's worth of payments shows that LIAONING ENERGY INDUSTRYLTD has a trailing yield of 1.1% on the current share price of CN¥3.77. If you buy this business for its dividend, you should have an idea of whether LIAONING ENERGY INDUSTRYLTD'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 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. LIAONING ENERGY INDUSTRYLTD paid out 112% 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 LIAONING ENERGY INDUSTRYLTD generated enough free cash flow to afford its dividend. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while LIAONING ENERGY INDUSTRYLTD's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit LIAONING ENERGY INDUSTRYLTD paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by LIAONING ENERGY INDUSTRYLTD's 30% 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. LIAONING ENERGY INDUSTRYLTD's dividend payments are broadly unchanged compared to where they were eight years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

The Bottom Line

Is LIAONING ENERGY INDUSTRYLTD worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 112% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of LIAONING ENERGY INDUSTRYLTD.

So if you're still interested in LIAONING ENERGY INDUSTRYLTD despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 3 warning signs for LIAONING ENERGY INDUSTRYLTD 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.