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 Hutchison Telecommunications Hong Kong Holdings Limited (HKG:215) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Hutchison Telecommunications Hong Kong Holdings' shares on or after the 23rd of August, you won't be eligible to receive the dividend, when it is paid on the 2nd of September.

The company's next dividend payment will be HK$0.023 per share, on the back of last year when the company paid a total of HK$0.075 to shareholders. Last year's total dividend payments show that Hutchison Telecommunications Hong Kong Holdings has a trailing yield of 6.3% on the current share price of HK$1.19. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Hutchison Telecommunications Hong Kong Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Hutchison Telecommunications Hong Kong 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. Hutchison Telecommunications Hong Kong Holdings's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Hutchison Telecommunications Hong Kong Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Hutchison Telecommunications Hong Kong Holdings reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hutchison Telecommunications Hong Kong Holdings's dividend payments per share have declined at 7.2% per year on average over the past 10 years, which is uninspiring.

Remember, you can always get a snapshot of Hutchison Telecommunications Hong Kong Holdings's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Has Hutchison Telecommunications Hong Kong Holdings got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Hutchison Telecommunications Hong Kong Holdings don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 1 warning sign for Hutchison Telecommunications Hong Kong Holdings that you should be aware of before investing in their 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.