Only Four Days Left To Cash In On CLP Holdings' (HKG:2) Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that CLP Holdings Limited (HKG:2) is about to go ex-dividend in just four days. Typically, the ex-dividend date is two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase CLP Holdings' shares before the 2nd of December to receive the dividend, which will be paid on the 15th of December.

The company's next dividend payment will be HK$0.63 per share, on the back of last year when the company paid a total of HK$3.15 to shareholders. Looking at the last 12 months of distributions, CLP Holdings has a trailing yield of approximately 4.6% on its current stock price of HK$68.05. 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.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CLP Holdings is paying out an acceptable 70% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether CLP Holdings generated enough free cash flow to afford its dividend. CLP Holdings paid out more free cash flow than it generated - 150%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

CLP Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were CLP Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for CLP Holdings

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, CLP Holdings's earnings per share have been growing at 20% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, CLP Holdings has increased its dividend at approximately 1.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because CLP Holdings is keeping back more of its profits to grow the business.

Final Takeaway

Is CLP Holdings an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note CLP Holdings paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

With that being said, if dividends aren't your biggest concern with CLP Holdings, you should know about the other risks facing this business. Every company has risks, and we've spotted 2 warning signs for CLP Holdings you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.