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Should Income Investors Look At CK Hutchison Holdings Limited (HKG:1) Before Its Ex-Dividend?

Simply Wall St

CK Hutchison Holdings Limited (HKG:1) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 2nd of September, you won't be eligible to receive this dividend, when it is paid on the 12th of September.

CK Hutchison Holdings's next dividend payment will be HK$0.87 per share, and in the last 12 months, the company paid a total of HK$3.17 per share. Based on the last year's worth of payments, CK Hutchison Holdings stock has a trailing yield of around 4.6% on the current share price of HK$68.55. 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.

See our latest analysis for CK Hutchison Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. CK Hutchison Holdings paid out a comfortable 31% of its profit last year. 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. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that CK Hutchison Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

SEHK:1 Historical Dividend Yield, August 28th 2019

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by CK Hutchison Holdings's 7.7% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, CK Hutchison Holdings has increased its dividend at approximately 2.6% a year on average.

To Sum It Up

Should investors buy CK Hutchison Holdings for the upcoming dividend? Earnings per share have fallen significantly, although at least CK Hutchison Holdings paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

Curious what other investors think of CK Hutchison Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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. Thank you for reading.