China Communications Construction (HKG:1800) Has Announced That It Will Be Increasing Its Dividend To CN¥0.3226

China Communications Construction Company Limited (HKG:1800) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of August to CN¥0.3226. Based on this payment, the dividend yield for the company will be 6.5%, which is fairly typical for the industry.

See our latest analysis for China Communications Construction

China Communications Construction's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. China Communications Construction is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 27.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from CN¥0.185 total annually to CN¥0.293. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

China Communications Construction May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been crawling upwards at 3.4% per year. If China Communications Construction is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On China Communications Construction's Dividend

Overall, we always like to see the dividend being raised, but we don't think China Communications Construction will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for China Communications Construction (of which 1 is concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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