It looks like CK Hutchison Holdings Limited (HKG:1) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 7th of September will not receive this dividend, which will be paid on the 17th of September.
CK Hutchison Holdings’s upcoming dividend is HK$0.61 a share, following on from the last 12 months, when the company distributed a total of HK$3.17 per share to shareholders. Based on the last year’s worth of payments, CK Hutchison Holdings stock has a trailing yield of around 6.3% on the current share price of HK$50.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for CK Hutchison Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Fortunately CK Hutchison Holdings’s payout ratio is modest, at just 33% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re not enthused to see that CK Hutchison Holdings’s earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
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 1.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Should investors buy CK Hutchison Holdings for the upcoming dividend? Earnings per share have been flat over this time, but we’re intrigued to see that CK Hutchison Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but CK Hutchison Holdings is halfway there. There’s a lot to like about CK Hutchison Holdings, and we would prioritise taking a closer look at it.
So while CK Hutchison Holdings looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. For example, we’ve found 2 warning signs for CK Hutchison Holdings that we recommend you consider before investing in the business.
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.
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