It looks like Tao Heung Holdings Limited (HKG:573) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 22nd of May will not receive the dividend, which will be paid on the 9th of June.

Tao Heung Holdings's next dividend payment will be HK$0.035 per share, on the back of last year when the company paid a total of HK$0.095 to shareholders. Looking at the last 12 months of distributions, Tao Heung Holdings has a trailing yield of approximately 9.2% on its current stock price of HK$1.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Tao Heung Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Tao Heung 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. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Tao Heung Holdings generated enough free cash flow to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.

It's positive to see that Tao Heung 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 how much of its profit Tao Heung Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Tao Heung Holdings's 9.5% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tao Heung Holdings has seen its dividend decline 2.5% per annum on average over the past ten years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.