BOC Hong Kong (Holdings) (HKG:2388) Is Increasing Its Dividend To HK$1.15

BOC Hong Kong (Holdings) Limited's (HKG:2388) dividend will be increasing from last year's payment of the same period to HK$1.15 on 15th of July. This takes the annual payment to 6.9% of the current stock price, which is about average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that BOC Hong Kong (Holdings)'s stock price has increased by 30% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for BOC Hong Kong (Holdings)

BOC Hong Kong (Holdings)'s Dividend Forecasted To Be Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Having distributed dividends for at least 10 years, BOC Hong Kong (Holdings) has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but BOC Hong Kong (Holdings)'s payout ratio of 54% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 17.6% over the next 3 years. Analysts estimate the future payout ratio will be 57% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of HK$1.01 in 2014 to the most recent total annual payment of HK$1.67. This means that it has been growing its distributions at 5.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, BOC Hong Kong (Holdings)'s EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company has been growing at a pretty soft 0.4% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for BOC Hong Kong (Holdings) that you should be aware of before investing. Is BOC Hong Kong (Holdings) not quite the opportunity you were looking for? Why not check out 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.