Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Qian Jiang Water Resources Development Co.,Ltd (SHSE:600283) is about to trade ex-dividend in the next three 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. 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. Meaning, you will need to purchase Qian Jiang Water Resources DevelopmentLtd's shares before the 14th of July to receive the dividend, which will be paid on the 14th of July.

The company's next dividend payment will be CN¥0.15 per share. Last year, in total, the company distributed CN¥0.15 to shareholders. Last year's total dividend payments show that Qian Jiang Water Resources DevelopmentLtd has a trailing yield of 1.0% on the current share price of CN¥14.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Qian Jiang Water Resources DevelopmentLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Qian Jiang Water Resources DevelopmentLtd paid out a comfortable 37% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 124% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Qian Jiang Water Resources DevelopmentLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Qian Jiang Water Resources DevelopmentLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Qian Jiang Water Resources DevelopmentLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Qian Jiang Water Resources DevelopmentLtd's earnings have been skyrocketing, up 27% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Qian Jiang Water Resources DevelopmentLtd's dividend payments per share have declined at 2.8% per year on average over the past 10 years, which is uninspiring. Qian Jiang Water Resources DevelopmentLtd is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Should investors buy Qian Jiang Water Resources DevelopmentLtd for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's hard to get excited about Qian Jiang Water Resources DevelopmentLtd from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 3 warning signs with Qian Jiang Water Resources DevelopmentLtd and understanding them should be part of your investment process.

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.