China Conch Venture Holdings' (HKG:586) Dividend Will Be Reduced To CN¥0.20

China Conch Venture Holdings Limited (HKG:586) has announced that on 26th of July, it will be paying a dividend ofCN¥0.20, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 3.7%, which only provides a modest boost to overall returns.

See our latest analysis for China Conch Venture Holdings

China Conch Venture Holdings' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, China Conch Venture Holdings' 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.

Looking forward, earnings per share is forecast to rise by 16.6% over the next year. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from CN¥0.197 total annually to CN¥0.184. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

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 China Conch Venture Holdings' EPS has declined at around 16% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, China Conch Venture Holdings has 3 warning signs (and 1 which is concerning) we think you should know about. Is China Conch Venture Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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