Don't Race Out To Buy CK Asset Holdings Limited (HKG:1113) Just Because It's Going Ex-Dividend

CK Asset Holdings Limited (HKG:1113) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase CK Asset Holdings' shares before the 15th of September in order to be eligible for the dividend, which will be paid on the 25th of September.

The company's next dividend payment will be HK$0.39 per share. Last year, in total, the company distributed HK$1.74 to shareholders. Looking at the last 12 months of distributions, CK Asset Holdings has a trailing yield of approximately 4.6% on its current stock price of HK$38.10. 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.

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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 Asset Holdings paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether CK Asset Holdings generated enough free cash flow to afford its dividend. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

See our latest analysis for CK Asset Holdings

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see CK Asset Holdings's earnings per share have dropped 16% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CK Asset Holdings has delivered 9.5% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Is CK Asset Holdings an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least CK Asset Holdings's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of CK Asset Holdings.

With that being said, if you're still considering CK Asset Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for CK Asset Holdings that you should be aware of before investing in their shares.

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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.