Readers hoping to buy MYS Group Co., Ltd. (SZSE:002303) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Accordingly, MYS Group investors that purchase the stock on or after the 21st of July will not receive the dividend, which will be paid on the 21st of July.

The company's next dividend payment will be CN¥0.02 per share. Last year, in total, the company distributed CN¥0.02 to shareholders. Calculating the last year's worth of payments shows that MYS Group has a trailing yield of 0.6% on the current share price of CN¥3.2. If you buy this business for its dividend, you should have an idea of whether MYS Group's dividend is reliable and sustainable. As a result, readers should always check whether MYS Group has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for MYS Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. MYS Group paid out a comfortable 31% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 103% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While MYS Group'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. Were this to happen repeatedly, this would be a risk to MYS Group's ability to maintain its dividend.

Click here to see how much of its profit MYS Group 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 earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see MYS Group's earnings per share have dropped 16% a year over the past 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 nine years, MYS Group has increased its dividend at approximately 5.4% a year on average.

Final Takeaway

Has MYS Group got what it takes to maintain its dividend payments? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though MYS Group is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with MYS Group. For instance, we've identified 4 warning signs for MYS Group (1 can't be ignored) 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.