CK Asset Holdings Limited (HKG:1113) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase CK Asset Holdings' shares before the 6th of September in order to be eligible for the dividend, which will be paid on the 16th of September.
The company's next dividend payment will be HK$0.41 per share, and in the last 12 months, the company paid a total of HK$1.87 per share. Calculating the last year's worth of payments shows that CK Asset Holdings has a trailing yield of 3.7% on the current share price of HK$51.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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 a comfortable 38% of its profit last year. 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. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see CK Asset Holdings earnings per share are up 2.2% per annum over the last five years. A payout ratio of 38% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. CK Asset Holdings has delivered an average of 18% per year annual increase in its dividend, based on the past six years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is CK Asset Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and CK Asset Holdings paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy CK Asset Holdings today.
In light of that, while CK Asset Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for CK Asset 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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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.
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