CK Hutchison Holdings' (HKG:1) Upcoming Dividend Will Be Larger Than Last Year's

CK Hutchison Holdings Limited (HKG:1) will increase its dividend on the 9th of June to HK$1.86. Based on the announced payment, the dividend yield for the company will be 4.8%, which is fairly typical for the industry.

View our latest analysis for CK Hutchison Holdings

CK Hutchison Holdings' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, CK Hutchison Holdings was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 81% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share is forecast to rise by 8.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from HK$2.98 to HK$2.66. The dividend has shrunk at around 1.1% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that CK Hutchison Holdings' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While EPS growth is quite low, CK Hutchison Holdings has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we always like to see the dividend being raised, but we don't think CK Hutchison Holdings will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments CK Hutchison Holdings has been making. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for CK Hutchison Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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