China Communications Construction (HKG:1800) Is Paying Out A Larger Dividend Than Last Year

China Communications Construction Company Limited (HKG:1800) has announced that it will be increasing its dividend on the 15th of August to HK$0.25. This makes the dividend yield about the same as the industry average at 5.6%.

Check out our latest analysis for China Communications Construction

China Communications Construction's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, China Communications Construction's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 18.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from CN¥0.16 to CN¥0.20. This implies that the company grew its distributions at a yearly rate of about 2.4% 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.

China Communications Construction May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, China Communications Construction's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each 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

In summary, while it's always good to see the dividend being raised, we don't think China Communications Construction's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think China Communications Construction is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for China Communications Construction you should be aware of, and 1 of them is significant. Is China Communications Construction 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.