The Cross-Harbour (Holdings) Limited (HKG:32) is about to trade ex-dividend in the next 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 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 Cross-Harbour (Holdings)'s shares before the 4th of September in order to be eligible for the dividend, which will be paid on the 15th of September.

The company's next dividend payment will be HK$0.06 per share, and in the last 12 months, the company paid a total of HK$0.42 per share. Based on the last year's worth of payments, Cross-Harbour (Holdings) has a trailing yield of 5.0% on the current stock price of HK$8.32. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Cross-Harbour (Holdings)

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. Cross-Harbour (Holdings) paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 118% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cross-Harbour (Holdings) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

As Cross-Harbour (Holdings)'s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Cross-Harbour (Holdings) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Cross-Harbour (Holdings)'s earnings per share have plummeted approximately 32% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cross-Harbour (Holdings) has delivered an average of 3.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Cross-Harbour (Holdings) is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is Cross-Harbour (Holdings) worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (92%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not that we think Cross-Harbour (Holdings) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Cross-Harbour (Holdings) despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for Cross-Harbour (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.