Hong Kong Shanghai Alliance Holdings (HKG:1001) Is Due To Pay A Dividend Of HK$0.015

The board of Hong Kong Shanghai Alliance Holdings Limited (HKG:1001) has announced that it will pay a dividend on the 8th of September, with investors receiving HK$0.015 per share. This means the dividend yield will be fairly typical at 6.6%.

See our latest analysis for Hong Kong Shanghai Alliance Holdings

Hong Kong Shanghai Alliance Holdings' Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Hong Kong Shanghai Alliance Holdings' dividend was only 19% of earnings, however it was paying out 1,623% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 62.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 10%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.046 in 2013 to the most recent total annual payment of HK$0.025. This works out to be a decline of approximately 5.9% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Hong Kong Shanghai Alliance Holdings has impressed us by growing EPS at 62% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Hong Kong Shanghai Alliance Holdings' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Hong Kong Shanghai Alliance Holdings 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Hong Kong Shanghai Alliance Holdings has 3 warning signs (and 1 which is significant) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.