It looks like CLP Holdings Limited (HKG:2) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase CLP Holdings' shares before the 4th of December in order to be eligible for the dividend, which will be paid on the 15th of December.

The company's next dividend payment will be HK$0.63 per share. Last year, in total, the company distributed HK$3.10 to shareholders. Calculating the last year's worth of payments shows that CLP Holdings has a trailing yield of 5.1% on the current share price of HK$60.4. If you buy this business for its dividend, you should have an idea of whether CLP Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for CLP Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CLP Holdings paid out 72% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. CLP Holdings paid out more free cash flow than it generated - 114%, 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.

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. 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 discomforted by CLP Holdings's 5.3% per annum decline in earnings in 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. Since the start of our data, 10 years ago, CLP Holdings has lifted its dividend by approximately 1.9% a year on average.

Final Takeaway

Has CLP Holdings got what it takes to maintain its dividend payments? CLP Holdings had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Bottom line: CLP Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering CLP Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for CLP Holdings and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.