CK Hutchison Holdings Limited (HKG:1) is about to trade 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 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 Hutchison Holdings' shares before the 4th of September in order to be eligible for the dividend, which will be paid on the 14th of September.

The company's next dividend payment will be HK$0.76 per share, on the back of last year when the company paid a total of HK$2.84 to shareholders. Last year's total dividend payments show that CK Hutchison Holdings has a trailing yield of 6.7% on the current share price of HK$42.4. 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.

Check out our latest analysis for CK Hutchison Holdings

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. That's why it's good to see CK Hutchison Holdings paying out a modest 38% of its earnings. 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. Fortunately, it paid out only 48% of its free cash flow in the past year.

It's positive to see that CK Hutchison Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that CK Hutchison Holdings's earnings are down 3.7% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CK Hutchison Holdings has seen its dividend decline 1.1% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Should investors buy CK Hutchison Holdings for the upcoming dividend? CK Hutchison Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in CK Hutchison Holdings for the dividends alone, you should always be mindful of the risks involved. For example - CK Hutchison Holdings has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.