Sinotruk (Hong Kong)'s (HKG:3808) Shareholders Will Receive A Smaller Dividend Than Last Year

Sinotruk (Hong Kong) Limited (HKG:3808) is reducing its dividend to HK$0.68 on the 9th of September. The dividend yield of 8.0% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Sinotruk (Hong Kong)

Sinotruk (Hong Kong)'s Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Sinotruk (Hong Kong)'s dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 5.9%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 61%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was CN¥0.08, compared to the most recent full-year payment of CN¥0.55. This means that it has been growing its distributions at 21% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. Sinotruk (Hong Kong) has impressed us by growing EPS 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.

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. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Sinotruk (Hong Kong) that investors need to be conscious of moving forward. 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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