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

It looks like CK Hutchison Holdings Limited (HKG:1) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 2nd of September to receive the dividend, which will be 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. Last year’s total dividend payments show that CK Hutchison Holdings has a trailing yield of 4.6% on the current share price of HK$68.55. 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 CK Hutchison Holdings has been able to grow its dividends, or if the dividend might be cut.

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. Fortunately CK Hutchison Holdings’s payout ratio is modest, at just 31% of profit. 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
SEHK:1 Historical Dividend Yield, August 28th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. CK Hutchison Holdings’s earnings per share have fallen at approximately 7.7% a year over the previous 5 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. CK Hutchison Holdings has delivered an average of 2.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is CK Hutchison Holdings worth buying for its 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.

Wondering what the future holds for CK Hutchison Holdings? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you’re in the market for dividend stocks, we recommend checking our list of top 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.