Readers hoping to buy CK Asset Holdings Limited (HKG:1113) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Accordingly, CK Asset Holdings investors that purchase the stock on or after the 5th of September will not receive the dividend, which will be paid on the 16th of September.

The company's upcoming dividend is HK$0.43 a share, following on from the last 12 months, when the company distributed a total of HK$2.22 per share to shareholders. Calculating the last year's worth of payments shows that CK Asset Holdings has a trailing yield of 4.2% on the current share price of HK$53.1. 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.

See our latest analysis for CK Asset 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. That's why it's good to see CK Asset Holdings paying out a modest 34% of its earnings. A useful secondary check can be to evaluate whether CK Asset Holdings generated enough free cash flow to afford its dividend. It paid out 25% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that CK Asset 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?

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 CK Asset Holdings earnings per share are up 5.2% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, CK Asset Holdings has lifted its dividend by approximately 18% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has CK Asset Holdings got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and CK Asset 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 CK Asset Holdings is halfway there. CK Asset Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while CK Asset Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for CK Asset Holdings you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.