The board of Shenzhou International Group Holdings Limited (HKG:2313) has announced that it will be increasing its dividend on the 22nd of June to HK$1.10. This takes the annual payment to 1.0% of the current stock price, which is about average for the industry.
Shenzhou International Group Holdings' Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Shenzhou International Group Holdings was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
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 57%, which is in the range that makes us comfortable with the sustainability of the dividend.
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¥0.29 in 2011, and the most recent fiscal year payment was CN¥1.75. This means that it has been growing its distributions at 20% per annum over that time. Shenzhou International Group Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Shenzhou International Group Holdings has seen EPS rising for the last five years, at 15% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
Our Thoughts On Shenzhou International Group Holdings' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Shenzhou International Group Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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