Bank of Communications (HKG:3328) Is Paying Out A Larger Dividend Than Last Year

Bank of Communications Co., Ltd. (HKG:3328) will increase its dividend on the 2nd of August to HK$0.42. This takes the annual payment to 7.7% of the current stock price, which is about average for the industry.

Check out our latest analysis for Bank of Communications

Bank of Communications' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Bank of Communications was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 7.7%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

Bank of Communications Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from CN¥0.10 in 2012 to the most recent annual payment of CN¥0.36. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.7% per annum over the last five years, which admittedly is a bit slow. If Bank of Communications is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Bank of Communications' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 17 analysts we track are forecasting for Bank of Communications for free with public analyst estimates for the company. Is Bank of Communications not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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