You shouldn't rush to buy Guangzhou Seagull Kitchen and Bath Products Co., Ltd. (SZSE:002084) before it goes ex-dividend.

Some investors rely on dividends to grow their wealth. If you're a dividend enthusiast, you might be interested to know the following: Guangzhou Seagull Kitchen & Bath Products Co., Ltd. (SZSE:002084) has an ex-dividend date in 2 days. The ex-dividend date is one day before the record date, which is the date shareholders must be on the company's books to receive their dividends. It's important to be aware of the ex-dividend date because all stock transactions must have settled before the record date. So if you buy Guangzhou Seagull Kitchen and Bath Products shares before the 26th of June, you'll be able to receive the dividend paid by the company on the 26th of June.

The company's next dividend will be CNY0.030082 per share, and in the last 12 months the company has paid a total of CNY0.03 per share. Calculating the dividends over the past year, we can see that Guangzhou Seagull Kitchen & Bath Products has a dividend yield of 1.2% over the past year on the current share price of CNY2.51. Dividends are an important source of income for many shareholders, but the health of a business is crucial to maintaining a dividend. That's why we always check whether dividend payments are sustainable, and if the company is growing.

See our latest analysis for Guangzhou Seagull Kitchen & Bath Products

If a company pays out more in dividends than it earned, the dividend may become unsustainable – never an ideal situation. Guangzhou Seagull Kitchen & Bath Products made a loss last year, so we're not glad to see that it continues to pay a dividend. Given the lack of profitability, we also need to see if the company generated enough cash flow to cover the dividend payment. If cash earnings cannot cover the dividend, the company will have to pay it from cash in the bank or through debt, neither of which are sustainable in the long term. The positive is that the dividend is well covered by free cash flow, and last year it paid out 12% of cash flow.

You can click here to see how much of its profit Guangzhou Seagull Kitchen and Bath Products paid out over the last 12 months.

Are profits and dividends increasing?

Companies with shrinking profits are tricky from a dividend perspective. Investors love dividends, so if profits fall and the dividend is cut, we can expect a significant sell-off of the stock at the same time. Guangzhou Seagull Kitchen & Bath Products made a loss last year, but unfortunately the overall trend is that the company's profits have been declining over the past five years, which makes us question whether the dividend is sustainable at all.

Many investors assess a company's dividend performance by evaluating how much the dividend has changed over time. Guangzhou Seagull Kitchen & Bath Products' dividends have fallen at an average of 2.2% per year over the past decade, which is not a good situation to be in. We don't like the fact that earnings and dividends per share have been declining in recent years, but we are encouraged by the fact that management has cut the dividend rather than taking risks and over-committing the company in order to maintain a yield for shareholders.

Get our latest analysis on Guangzhou Seagull Kitchen & Bath Products' balance sheet health here.

Conclusion

Should investors buy Guangzhou Seagull Kitchen & Bath Products for its upcoming dividend?It's hard to get used to Guangzhou Seagull Kitchen & Bath Products paying a dividend, despite reporting a loss over the past year. But at least the dividend was covered by free cash flow.From a dividend perspective, it's not a very attractive proposition, so we'd probably be better off passing on it for now.

So if you're interested in Guangzhou Seagull Kitchen & Bath Products despite the low quality of its dividend, you should be familiar with the risks this stock faces. All companies have risks, and we 2 warning signs for Guangzhou Seagull Kitchen & Bath Products (One of them is a bit uncomfortable!) Just something to be aware of.

If you're looking for stocks with high dividends, Check out our picks for the top dividend stocks.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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