Guangdong Xianglu Tungsten Co., Ltd. (SZSE:002842) is about to trade ex-dividend in the next three 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. 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. Accordingly, Guangdong Xianglu Tungsten investors that purchase the stock on or after the 10th of June will not receive the dividend, which will be paid on the 10th of June.

The company's upcoming dividend is CN¥0.10 a share, following on from the last 12 months, when the company distributed a total of CN¥0.10 per share to shareholders. Based on the last year's worth of payments, Guangdong Xianglu Tungsten stock has a trailing yield of around 1.2% on the current share price of CN¥8.38. 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 Guangdong Xianglu Tungsten has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Guangdong Xianglu Tungsten

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. Guangdong Xianglu Tungsten paid out 113% 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. 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. It paid out more than half (67%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Guangdong Xianglu Tungsten'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. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Guangdong Xianglu Tungsten 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. With that in mind, we're discomforted by Guangdong Xianglu Tungsten's 21% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Guangdong Xianglu Tungsten has delivered 22% dividend growth per year on average over the past five years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Guangdong Xianglu Tungsten is already paying out 113% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Is Guangdong Xianglu Tungsten an attractive dividend stock, or better left on the shelf? It's never fun to see a company's earnings per share in retreat. Additionally, Guangdong Xianglu Tungsten is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Guangdong Xianglu Tungsten despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 5 warning signs for Guangdong Xianglu Tungsten (of which 2 make us uncomfortable!) you should know about.

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.