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 Tian Lun Gas Holdings Limited (HKG:1600) is about to go ex-dividend in just 3 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. Meaning, you will need to purchase Tian Lun Gas Holdings' shares before the 24th of October to receive the dividend, which will be paid on the 29th of November.

The company's next dividend payment will be CN¥0.0479 per share, on the back of last year when the company paid a total of CN¥0.18 to shareholders. Last year's total dividend payments show that Tian Lun Gas Holdings has a trailing yield of 5.5% on the current share price of HK$3.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Tian Lun Gas Holdings paid out a comfortable 36% of its profit last year. A useful secondary check can be to evaluate whether Tian Lun Gas Holdings generated enough free cash flow to afford its dividend. Over the last year it paid out 69% of its free cash flow as dividends, within the usual range for most companies.

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.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Tian Lun Gas Holdings's earnings per share have dropped 5.3% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tian Lun Gas Holdings has delivered 12% dividend growth per year on average over the past eight years.

Final Takeaway

Is Tian Lun Gas Holdings worth buying for its dividend? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. Overall, it's hard to get excited about Tian Lun Gas Holdings from a dividend perspective.

If you want to look further into Tian Lun Gas Holdings, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for Tian Lun Gas Holdings that we strongly recommend you have a look at before investing in the company.

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.