Bank of Communications (HKG:3328) Is Increasing Its Dividend To HK$0.38

The board of Bank of Communications Co., Ltd. (HKG:3328) has announced that it will be increasing its dividend on the 3rd of August to HK$0.38. Based on the announced payment, the dividend yield for the company will be 7.3%, which is fairly typical for the industry.

View our latest analysis for Bank of Communications

Bank of Communications' Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Bank of Communications was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to fall by 1.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 38%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was CN¥0.18 in 2011, and the most recent fiscal year payment was CN¥0.32. This works out to be a compound annual growth rate (CAGR) of approximately 5.7% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Bank of Communications has only grown its earnings per share at 3.1% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Bank of Communications will make a great income stock. While Bank of Communications is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Bank of Communications that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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