China Construction Bank's (HKG:939) Shareholders Will Receive A Bigger Dividend Than Last Year

China Construction Bank Corporation (HKG:939) has announced that it will be increasing its dividend on the 5th of August to HK$0.39. This takes the annual payment to 6.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for China Construction Bank

China Construction Bank's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, China Construction Bank was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 7.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

China Construction Bank Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2011, the first annual payment was CN¥0.21, compared to the most recent full-year payment of CN¥0.33. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, China Construction Bank has only grown its earnings per share at 3.3% per annum over the past five years. While EPS growth is quite low, China Construction Bank has the option to increase the payout ratio to return more cash to shareholders.

China Construction Bank Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 19 China Construction Bank analysts we track are forecasting continued growth with our free report on analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.

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