Readers hoping to buy Wenfeng Great World Chain Development Corporation (SHSE:601010) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. Therefore, if you purchase Wenfeng Great World Chain Development's shares on or after the 16th of June, you won't be eligible to receive the dividend, when it is paid on the 16th of June.

The company's upcoming dividend is CN¥0.13 a share, following on from the last 12 months, when the company distributed a total of CN¥0.13 per share to shareholders. Based on the last year's worth of payments, Wenfeng Great World Chain Development has a trailing yield of 4.1% on the current stock price of CN¥3.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Wenfeng Great World Chain Development has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Wenfeng Great World Chain Development

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Wenfeng Great World Chain Development paid out 187% 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 Wenfeng Great World Chain Development generated enough free cash flow to afford its dividend. It paid out an unsustainably high 204% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Wenfeng Great World Chain Development is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Wenfeng Great World Chain Development does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Wenfeng Great World Chain Development's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Wenfeng Great World Chain Development paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Wenfeng Great World Chain Development's earnings per share have fallen at approximately 13% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Wenfeng Great World Chain Development has increased its dividend at approximately 1.4% a year on average.

The Bottom Line

Has Wenfeng Great World Chain Development got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (187%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Wenfeng Great World Chain Development.

With that being said, if you're still considering Wenfeng Great World Chain Development as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Wenfeng Great World Chain Development is showing 4 warning signs in our investment analysis, and 2 of those are significant...

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.