China Communications Construction's (HKG:1800) Upcoming Dividend Will Be Larger Than Last Year's

China Communications Construction Company Limited (HKG:1800) will increase its dividend from last year's comparable payment on the 13th of August to CN¥0.3226. This takes the annual payment to 7.4% of the current stock price, which is about average for the industry.

See our latest analysis for China Communications Construction

China Communications Construction's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, China Communications Construction was earning enough to cover the dividend, but free cash flows weren't positive. 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 29.0% over the next year. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

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 annual payment back then was CN¥0.185, compared to the most recent full-year payment of CN¥0.293. This implies that the company grew its distributions at a yearly rate of about 4.7% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 3.6% per annum over the last five years, which admittedly is a bit slow. 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 a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for China Communications Construction (of which 1 is a bit concerning!) you should know about. 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.