Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see China Merchants Port Holdings Company Limited (HKG:144) is about to trade ex-dividend in the next 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 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. Thus, you can purchase China Merchants Port Holdings' shares before the 10th of June in order to receive the dividend, which the company will pay on the 22nd of July.

The company's next dividend payment will be HK$0.72 per share. Last year, in total, the company distributed HK$0.94 to shareholders. Based on the last year's worth of payments, China Merchants Port Holdings stock has a trailing yield of around 6.2% on the current share price of HK$15.18. If you buy this business for its dividend, you should have an idea of whether China Merchants Port Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for China Merchants Port Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately China Merchants Port Holdings's payout ratio is modest, at just 43% of profit. A useful secondary check can be to evaluate whether China Merchants Port Holdings generated enough free cash flow to afford its dividend. The good news is it paid out just 17% of its free cash flow in the last year.

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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see China Merchants Port Holdings earnings per share are up 4.1% per annum over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China Merchants Port Holdings has seen its dividend decline 1.4% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Has China Merchants Port Holdings got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and China Merchants Port Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and China Merchants Port Holdings is halfway there. China Merchants Port Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in China Merchants Port Holdings for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for China Merchants Port Holdings you should know about.

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.