Fosun International (HKG:656) Has Announced That It Will Be Increasing Its Dividend To HK$0.30

Fosun International Limited's (HKG:656) dividend will be increasing to HK$0.30 on 15th of July. Although the dividend is now higher, the yield is only 3.8%, which is below the industry average.

View our latest analysis for Fosun International

Fosun International's Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Fosun International was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 26.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from CN¥0.13 to CN¥0.24. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% 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.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, Fosun International's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, Fosun International could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Fosun International will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Fosun International that investors should take into consideration. Is Fosun International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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