It looks like Vitasoy International Holdings Limited (HKG:345) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 5th of December will not receive this dividend, which will be paid on the 19th of December.

Vitasoy International Holdings's next dividend payment will be HK$0.038 per share, and in the last 12 months, the company paid a total of HK$0.42 per share. Based on the last year's worth of payments, Vitasoy International Holdings has a trailing yield of 1.4% on the current stock price of HK$30.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Vitasoy International Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Vitasoy International Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Vitasoy International Holdings is paying out an acceptable 62% of its profit, a common payout level among most companies. 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. The company paid out 103% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Vitasoy International Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Vitasoy International Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Vitasoy International Holdings's earnings per share have risen 18% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Vitasoy International Holdings has lifted its dividend by approximately 13% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Vitasoy International Holdings worth buying for its dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 103% of its cashflow, which is uncomfortably high. To summarise, Vitasoy International Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Ever wonder what the future holds for Vitasoy International Holdings? See what the ten analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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