SINOPEC Engineering (Group) (HKG:2386) Will Pay A Larger Dividend Than Last Year At CN¥0.1368

The board of SINOPEC Engineering (Group) Co., Ltd. (HKG:2386) has announced that it will be paying its dividend of CN¥0.1368 on the 28th of October, an increased payment from last year's comparable dividend. This makes the dividend yield 9.9%, which is above the industry average.

See our latest analysis for SINOPEC Engineering (Group)

SINOPEC Engineering (Group)'s Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, SINOPEC Engineering (Group)'s dividend made up quite a large proportion of earnings but only 50% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 32.6%. If the dividend continues on this path, the payout ratio could be 66% by next year, which we think can be pretty sustainable going forward.

SINOPEC Engineering (Group)'s Dividend Has Lacked Consistency

Looking back, SINOPEC Engineering (Group)'s dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was CN¥0.268 in 2013, and the most recent fiscal year payment was CN¥0.313. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. 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.

SINOPEC Engineering (Group) Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. SINOPEC Engineering (Group) has impressed us by growing EPS at 8.4% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

SINOPEC Engineering (Group) Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for SINOPEC Engineering (Group) that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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