Sinotruk (Hong Kong)'s (HKG:3808) Dividend Will Be Reduced To CN¥0.55

Sinotruk (Hong Kong) Limited (HKG:3808) has announced that on 1st of January, it will be paying a dividend ofCN¥0.55, which a reduction from last year's comparable dividend. However, the dividend yield of 6.7% is still a decent boost to shareholder returns.

Our free stock report includes 1 warning sign investors should be aware of before investing in Sinotruk (Hong Kong). Read for free now.

Sinotruk (Hong Kong)'s Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Sinotruk (Hong Kong) was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 40.6%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Sinotruk (Hong Kong)

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 annual payment during the last 10 years was CN¥0.0479 in 2015, and the most recent fiscal year payment was CN¥1.17. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Sinotruk (Hong Kong) has been growing its earnings per share at 11% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Sinotruk (Hong Kong) Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Sinotruk (Hong Kong) has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 1 warning sign for Sinotruk (Hong Kong) that investors should know about before committing capital to this stock. Is Sinotruk (Hong Kong) not quite the opportunity you were looking for? Why not check out our selection of top 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.