China Dongxiang (Group) (HKG:3818) Has Announced That It Will Be Increasing Its Dividend To HK$0.061

China Dongxiang (Group) Co., Ltd. (HKG:3818) has announced that it will be increasing its dividend on the 8th of September to HK$0.061. This makes the dividend yield 9.6%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that China Dongxiang (Group)'s stock price has increased by 48% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for China Dongxiang (Group)

China Dongxiang (Group)'s Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, China Dongxiang (Group) was paying only paying out a fraction of earnings, but the payment was a massive 1,027% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 27.7% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 58%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was CN¥0.12, compared to the most recent full-year payment of CN¥0.11. The dividend has shrunk at around 1.5% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. China Dongxiang (Group) has impressed us by growing EPS at 14% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for China Dongxiang (Group) (2 are significant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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This article by Simply Wall St is general in nature. 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.
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