Sinotruk (Hong Kong) (HKG:3808) Is Reducing Its Dividend To HK$0.68

Sinotruk (Hong Kong) Limited (HKG:3808) is reducing its dividend to HK$0.68 on the 9th of September. This means the annual payment is 6.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Sinotruk (Hong Kong)

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Sinotruk (Hong Kong) is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 0.05%. If the dividend continues along recent trends, we estimate the payout ratio could be 58%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from CN¥0.08 to CN¥0.55. This means that it has been growing its distributions at 21% per annum over that time. Sinotruk (Hong Kong) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Sinotruk (Hong Kong) has grown earnings per share at 52% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Sinotruk (Hong Kong)'s Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Sinotruk (Hong Kong) is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Sinotruk (Hong Kong) you should be aware of, and 1 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.