Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Nantong Jiangshan Agrochemical & Chemicals Co.,Ltd. (SHSE:600389) is about to go ex-dividend in just 3 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. Therefore, if you purchase Nantong Jiangshan Agrochemical & ChemicalsLtd's shares on or after the 30th of September, you won't be eligible to receive the dividend, when it is paid on the 30th of September.

The company's next dividend payment will be CN¥3.00 per share. Last year, in total, the company distributed CN¥3.00 to shareholders. Looking at the last 12 months of distributions, Nantong Jiangshan Agrochemical & ChemicalsLtd has a trailing yield of approximately 5.9% on its current stock price of CN¥51.02. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Nantong Jiangshan Agrochemical & ChemicalsLtd

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. Nantong Jiangshan Agrochemical & ChemicalsLtd is paying out an acceptable 69% of its profit, a common payout level among most companies. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Nantong Jiangshan Agrochemical & ChemicalsLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Nantong Jiangshan Agrochemical & ChemicalsLtd's earnings have been skyrocketing, up 100% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Nantong Jiangshan Agrochemical & ChemicalsLtd could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nantong Jiangshan Agrochemical & ChemicalsLtd has delivered an average of 40% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has Nantong Jiangshan Agrochemical & ChemicalsLtd got what it takes to maintain its dividend payments? We like Nantong Jiangshan Agrochemical & ChemicalsLtd's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Nantong Jiangshan Agrochemical & ChemicalsLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Nantong Jiangshan Agrochemical & ChemicalsLtd for the dividends alone, you should always be mindful of the risks involved. For example - Nantong Jiangshan Agrochemical & ChemicalsLtd has 2 warning signs we think 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.