China Everbright Environment Group (HKG:257) Is Reducing Its Dividend To HK$0.15

The board of China Everbright Environment Group Limited (HKG:257) has announced it will be reducing its dividend by 21% from last year's payment of HK$0.19 on the 6th of October, with shareholders receiving HK$0.15. The yield is still above the industry average at 8.8%.

Check out our latest analysis for China Everbright Environment Group

China Everbright Environment Group's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. China Everbright Environment Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 25.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

China Everbright Environment Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was HK$0.05, compared to the most recent full-year payment of HK$0.34. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

China Everbright Environment Group May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, China Everbright Environment Group has only grown its earnings per share at 4.3% per annum over the past five years. If China Everbright Environment Group is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think China Everbright Environment Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for China Everbright Environment Group you should be aware of, and 1 of them is a bit unpleasant. Is China Everbright Environment Group not quite the opportunity you were looking for? Why not check out our selection of top 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.