China Conch Venture Holdings (HKG:586) Will Pay A Smaller Dividend Than Last Year

China Conch Venture Holdings Limited (HKG:586) is reducing its dividend from last year's comparable payment to CN¥0.40 on the 21st of July. This means that the annual payment is 3.7% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for China Conch Venture Holdings

China Conch Venture Holdings' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, China Conch Venture Holdings' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 52.1% over the next year. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

China Conch Venture Holdings' Dividend Has Lacked Consistency

It's comforting to see that China Conch Venture Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2014, the dividend has gone from CN¥0.197 total annually to CN¥0.35. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

China Conch Venture Holdings May Find It Hard To Grow The Dividend

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. However, China Conch Venture Holdings has only grown its earnings per share at 2.4% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. As an example, we've identified 2 warning signs for China Conch Venture Holdings that you should be aware of before investing. 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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