Café de Coral Holdings Limited (HKG:341) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 5th of September in order to be eligible for this dividend, which will be paid on the 18th of September.

Café de Coral Holdings's next dividend payment will be HK$0.65 per share, and in the last 12 months, the company paid a total of HK$0.84 per share. Looking at the last 12 months of distributions, Café de Coral Holdings has a trailing yield of approximately 3.4% on its current stock price of HK$25. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Café de Coral Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Café de Coral Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 83% 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 Café de Coral Holdings generated enough free cash flow to afford its dividend. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Café de Coral 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 that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Café de Coral Holdings's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Café de Coral Holdings has delivered 4.7% dividend growth per year on average over the past 10 years.

Final Takeaway

Is Café de Coral Holdings worth buying for its dividend? While earnings per share are flat, at least Café de Coral Holdings has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not that we think Café de Coral Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Wondering what the future holds for Café de Coral Holdings? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.