Bank of East Asia (HKG:23) Has Announced That It Will Be Increasing Its Dividend To HK$0.36

The board of The Bank of East Asia, Limited (HKG:23) has announced that it will be paying its dividend of HK$0.36 on the 5th of October, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 3.0% is only a modest boost to shareholder returns.

See our latest analysis for Bank of East Asia

Bank of East Asia's Dividend Forecasted To Be Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end.

Having distributed dividends for at least 10 years, Bank of East Asia has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Bank of East Asia's payout ratio of 29% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 18.8%. The future payout ratio could be 45% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was HK$1.06, compared to the most recent full-year payment of HK$0.33. The dividend has fallen 69% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

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. Bank of East Asia has seen earnings per share falling at 4.5% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Bank of East Asia's Dividend

Overall, we always like to see the dividend being raised, but we don't think Bank of East Asia will make a great income stock. While Bank of East Asia is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Bank of East Asia is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Bank of East Asia that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.