China State Construction International Holdings (HKG:3311) Is Increasing Its Dividend To HK$0.20

By
Simply Wall St
Published
May 12, 2022
SEHK:3311
Source: Shutterstock

The board of China State Construction International Holdings Limited (HKG:3311) has announced that it will be increasing its dividend on the 7th of July to HK$0.20. Based on the announced payment, the dividend yield for the company will be 4.1%, which is fairly typical for the industry.

View our latest analysis for China State Construction International Holdings

China State Construction International Holdings' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. China State Construction International Holdings is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 14.8%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

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SEHK:3311 Historic Dividend May 12th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from HK$0.12 in 2012 to the most recent annual payment of HK$0.41. This works out to be a compound annual growth rate (CAGR) of approximately 13% 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.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, China State Construction International Holdings has only grown its earnings per share at 2.4% per annum over the past five years. While EPS growth is quite low, China State Construction International Holdings has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 State Construction International Holdings (of which 1 is significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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