China Communications Services' (HKG:552) Upcoming Dividend Will Be Larger Than Last Year's

China Communications Services Corporation Limited (HKG:552) will increase its dividend on the 12th of August to HK$0.20. The announced payment will take the dividend yield to 5.9%, which is in line with the average for the industry.

View our latest analysis for China Communications Services

China Communications Services' Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, China Communications Services' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 4.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was CN¥0.12 in 2012, and the most recent fiscal year payment was CN¥0.17. This means that it has been growing its distributions at 3.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.5% a year for the past five years, which isn't massive but still better than seeing them shrink. If China Communications Services is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On China Communications Services' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for China Communications Services that you should be aware of before investing. 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.