China State Construction International Holdings' (HKG:3311) Dividend Will Be Increased To HK$0.20

China State Construction International Holdings Limited (HKG:3311) has announced that it will be increasing its dividend on the 5th of October to HK$0.20. This will take the dividend yield to an attractive 6.6%, providing a nice boost to shareholder returns.

See our latest analysis for China State Construction International Holdings

China State Construction International Holdings' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, China State Construction International Holdings was earning enough to cover the dividend, but free cash flows weren't positive. 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 8.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was HK$0.11 in 2011, and the most recent fiscal year payment was HK$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, China State Construction International Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year. While growth may be thin on the ground, China State Construction International Holdings could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think China State Construction International Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think China State Construction International Holdings is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, China State Construction International Holdings has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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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