Hong Kong Shanghai Alliance Holdings' (HKG:1001) Dividend Is Being Reduced To HK$0.01

Hong Kong Shanghai Alliance Holdings Limited (HKG:1001) is reducing its dividend from last year's comparable payment to HK$0.01 on the 30th of December. This means that the dividend yield is 5.0%, which is a bit low when comparing to other companies in the industry.

Our analysis indicates that 1001 is potentially undervalued!

Hong Kong Shanghai Alliance Holdings' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Hong Kong Shanghai Alliance Holdings was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 17.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of HK$0.018 in 2012 to the most recent total annual payment of HK$0.02. This implies that the company grew its distributions at a yearly rate of about 1.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Hong Kong Shanghai Alliance Holdings has been growing its earnings per share at 18% a year over the past five years. Hong Kong Shanghai Alliance Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Hong Kong Shanghai Alliance Holdings Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Hong Kong Shanghai Alliance Holdings does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Hong Kong Shanghai Alliance Holdings has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Is Hong Kong Shanghai Alliance 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.