DHT Holdings, Inc. (NYSE:DHT) is about to trade ex-dividend in the next four days. 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 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. This means that investors who purchase DHT Holdings' shares on or after the 22nd of November will not receive the dividend, which will be paid on the 29th of November.

The company's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.99 per share. Looking at the last 12 months of distributions, DHT Holdings has a trailing yield of approximately 9.5% on its current stock price of US$10.45. If you buy this business for its dividend, you should have an idea of whether DHT Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for DHT 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. Last year, DHT Holdings paid out 100% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (83%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while DHT Holdings's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see DHT Holdings's earnings per share have been shrinking at 2.5% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DHT Holdings has delivered 29% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. DHT Holdings is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Is DHT Holdings worth buying for its dividend? Earnings per share have been in decline, which is not encouraging. Worse, DHT Holdings's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of DHT Holdings.

With that being said, if you're still considering DHT Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for DHT Holdings 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.