SINOPEC Engineering (Group)'s (HKG:2386) Dividend Is Being Reduced To HK$0.11

SINOPEC Engineering (Group) Co., Ltd. (HKG:2386) is reducing its dividend to HK$0.11 on the 29th of October. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.

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. Based on the last payment, SINOPEC Engineering (Group) was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 5.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

SINOPEC Engineering (Group)'s Dividend Has Lacked Consistency

SINOPEC Engineering (Group) has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2013, the dividend has gone from CN¥0.27 to CN¥0.30. This implies that the company grew its distributions at a yearly rate of about 1.4% 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, SINOPEC Engineering (Group)'s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On SINOPEC Engineering (Group)'s Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for SINOPEC Engineering (Group) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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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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