China Merchants Expressway Network & Technology HoldingsLtd's (SZSE:001965) Upcoming Dividend Will Be Larger Than Last Year's

The board of China Merchants Expressway Network & Technology Holdings Co.,Ltd. (SZSE:001965) has announced that it will be paying its dividend of CN¥0.531 on the 30th of July, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for China Merchants Expressway Network & Technology HoldingsLtd

China Merchants Expressway Network & Technology HoldingsLtd's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. China Merchants Expressway Network & Technology HoldingsLtd was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 79% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 0.9%. If the dividend continues on this path, the payout ratio could be 60% by next year, which we think can be pretty sustainable going forward.

China Merchants Expressway Network & Technology HoldingsLtd's Dividend Has Lacked Consistency

China Merchants Expressway Network & Technology HoldingsLtd has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the annual payment back then was CN¥0.219, compared to the most recent full-year payment of CN¥0.531. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. China Merchants Expressway Network & Technology HoldingsLtd has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

China Merchants Expressway Network & Technology HoldingsLtd Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. China Merchants Expressway Network & Technology HoldingsLtd has seen EPS rising for the last five years, at 8.4% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

An additional note is that the company has been raising capital by issuing stock equal to 10% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On China Merchants Expressway Network & Technology HoldingsLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think China Merchants Expressway Network & Technology HoldingsLtd will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments China Merchants Expressway Network & Technology HoldingsLtd has been making. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for China Merchants Expressway Network & Technology HoldingsLtd (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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