Sinotruk (Hong Kong) (HKG:3808) Is Paying Out Less In Dividends Than Last Year

Sinotruk (Hong Kong) Limited's (HKG:3808) dividend is being reduced from last year's payment covering the same period to CN¥0.33 on the 8th of September. The dividend yield will be in the average range for the industry at 2.8%.

Check out our latest analysis for Sinotruk (Hong Kong)

Sinotruk (Hong Kong)'s Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Sinotruk (Hong Kong)'s dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, so there isn't too much pressure on the dividend.

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 dividend has gone from an annual total of CN¥0.0117 in 2013 to the most recent total annual payment of CN¥0.29. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. 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 Is Doubtful

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Sinotruk (Hong Kong)'s EPS has declined at around 9.9% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Sinotruk (Hong Kong) that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.