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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Cinemark Holdings, Inc. (NYSE:CNK) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 3rd of September will not receive the dividend, which will be paid on the 18th of September.
Cinemark Holdings's next dividend payment will be US$0.34 per share, on the back of last year when the company paid a total of US$1.36 to shareholders. Calculating the last year's worth of payments shows that Cinemark Holdings has a trailing yield of 3.6% on the current share price of $37.6. If you buy this business for its dividend, you should have an idea of whether Cinemark Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Cinemark Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Cinemark Holdings generated enough free cash flow to afford its dividend. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Cinemark 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Cinemark Holdings earnings per share are up 6.2% per annum over the last five years. Decent historical earnings per share growth suggests Cinemark Holdings has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.