Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hon Kwok Land Investment Company, Limited (HKG:160) is about to trade ex-dividend in the next four 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Hon Kwok Land Investment Company's shares on or after the 5th of September, you won't be eligible to receive the dividend, when it is paid on the 4th of October.

The company's upcoming dividend is HK$0.13 a share, following on from the last 12 months, when the company distributed a total of HK$0.13 per share to shareholders. Looking at the last 12 months of distributions, Hon Kwok Land Investment Company has a trailing yield of approximately 7.1% on its current stock price of HK$1.77. 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.

View our latest analysis for Hon Kwok Land Investment Company

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. Hon Kwok Land Investment Company paid out 59% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out more than half (55%) of its free cash flow in the past year, which is within an average 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 how much of its profit Hon Kwok Land Investment Company paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hon Kwok Land Investment Company's earnings per share have plummeted approximately 45% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Hon Kwok Land Investment Company dividends are largely the same as they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Final Takeaway

Is Hon Kwok Land Investment Company worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least Hon Kwok Land Investment Company's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Hon Kwok Land Investment Company.

Although, if you're still interested in Hon Kwok Land Investment Company and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 1 warning sign for Hon Kwok Land Investment Company that we recommend you consider before investing in the business.

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.