Guangdong Yuehai Feeds Group Co., Ltd. (SZSE:001313) is about to trade ex-dividend in the next two days. The ex-dividend date is one business day before the record date. This is the cut-off date by which shareholders must be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock must be settled before the record date to qualify for dividends. This means that investors who purchase Guangdong Yuehai Feeds GroupLtd shares on or after June 19th will not receive the dividend, which will be paid on June 19th.

The company’s upcoming dividend is CN¥0.05 per share, following on from the last twelve months when the company distributed a total of CN¥0.05 per share to shareholders. Calculating the last year’s payments shows that Guangdong Yuehai Feeds GroupLtd has a trailing yield of 0.6% on the current share price of CN¥8.47. We like to see companies paying a dividend, but it’s also important to make sure that laying the golden eggs won’t kill our golden goose! So we need to check whether dividend payments are covered and whether profits are growing.

See our latest analysis for Guangdong Yuehai Feeds GroupLtd

Dividends are typically paid out of company profits, so if a company pays out more than it earned then its dividend is usually at higher risk of being cut. Last year, Guangdong Yuehai Feeds GroupLtd paid out 103% of its earnings as dividends, which is above a level we’re comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Guangdong Yuehai Feeds GroupLtd generated enough free cash flow to pay its dividend. Last year it paid dividends equivalent to 219% of what it generated in free cash flow, a disturbingly high percentage. It’s pretty hard to pay out more than you earn, so we wonder how Guangdong Yuehai Feeds GroupLtd plans to continue funding this dividend, or if the company might be forced to cut the payment.

From a dividend perspective, cash is slightly more important than profits, but given that Guangdong Yuehai Feeds Group Ltd’s payouts were not well covered by either profits or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Guangdong Yuehai Feeds GroupLtd paid out in the last twelve months.

Have profits and dividends grown?

Companies with declining profits are riskier for dividend shareholders. If the business sector enters a recession and the dividend is cut, the company could see its value drop precipitously. Guangdong Yuehai Feeds Group Ltd’s earnings per share have fallen about 33% per year over the past five years.

The main way most investors will assess a company’s dividend prospects is to check the historical rate of dividend growth. Guangdong Yuehai Feeds GroupLtd’s dividend payments per share have fallen by an average of 4.7% per year over the past two years, which is uninspiring. It’s never nice to see earnings and dividends fall, but at least management cut the dividend rather than potentially risking the health of the company in an attempt to keep it going.

Summing it up

From a dividend perspective, should investors buy or avoid Guangdong Yuehai Feeds GroupLtd? Not only are earnings per share falling, but Guangdong Yuehai Feeds Group Ltd is also paying out an uncomfortably high percentage of both earnings and cash flow as dividends to shareholders. This is a clearly sub-optimal combination, which usually indicates that the dividend is at risk of being cut. If not now, then maybe in the future. From a dividend perspective, it is not an attractive combination and we are inclined to pass it up for the time being.

So if you’re still interested in Guangdong Yuehai Feeds GroupLtd despite its poor dividend qualities, you should be well informed about some of the risks facing this stock. Example: We’ve seen it 2 warning signs for Guangdong Yuehai Feeds GroupLtd you have to take it into account.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.

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