Guangzhou Rural Commercial Bank (HKG:1551) Is Increasing Its Dividend To CN¥0.0492

The board of Guangzhou Rural Commercial Bank Co., Ltd. (HKG:1551) has announced that the dividend on 25th of July will be increased to CN¥0.0492, which will be 12% higher than last year's payment of CN¥0.0439 which covered the same period. Even though the dividend went up, the yield is still quite low at only 3.1%.

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Guangzhou Rural Commercial Bank's Payment Expected To Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Guangzhou Rural Commercial Bank has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. Based on Guangzhou Rural Commercial Bank's last earnings report, the payout ratio is at a decent 46%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, EPS could fall by 33.7% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the future payout ratio could be 66%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

View our latest analysis for Guangzhou Rural Commercial Bank

Guangzhou Rural Commercial Bank's Dividend Has Lacked Consistency

It's comforting to see that Guangzhou Rural Commercial Bank has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 7 years was CN¥0.20 in 2018, and the most recent fiscal year payment was CN¥0.045. The dividend has fallen 78% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 34% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On Guangzhou Rural Commercial Bank's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Guangzhou Rural Commercial Bank's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Guangzhou Rural Commercial Bank has 2 warning signs (and 1 which is a bit unpleasant) we think 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.