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

Hong Kong Shanghai Alliance Holdings Limited's (HKG:1001) investors are due to receive a payment of HK$0.015 per share on 8th of January. This will take the annual payment to 9.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Hong Kong Shanghai Alliance Holdings

Hong Kong Shanghai Alliance Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Hong Kong Shanghai Alliance Holdings was paying a whopping 1,623% as a dividend, but this only made up 22% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 58.4% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was HK$0.058 in 2013, and the most recent fiscal year payment was HK$0.03. This works out to be a decline of approximately 6.4% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Hong Kong Shanghai Alliance Holdings has grown earnings per share at 58% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Hong Kong Shanghai Alliance Holdings will make a great income stock. 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 a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.