Hong Kong Exchanges and Clearing (HKG:388) Is Increasing Its Dividend To HK$6.00

Hong Kong Exchanges and Clearing Limited (HKG:388) will increase its dividend on the 16th of September to HK$6.00, which is 38% higher than last year's payment from the same period of HK$4.36. Even though the dividend went up, the yield is still quite low at only 2.1%.

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Hong Kong Exchanges and Clearing's Projected Earnings Seem Likely To Cover Future Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Hong Kong Exchanges and Clearing's dividend made up quite a large proportion of earnings but only 59% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 24.1%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 78% which is a bit high but can definitely be sustainable.

See our latest analysis for Hong Kong Exchanges and Clearing

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of HK$3.55 in 2015 to the most recent total annual payment of HK$9.26. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Hong Kong Exchanges and Clearing has been growing its earnings per share at 10% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Hong Kong Exchanges and Clearing's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hong Kong Exchanges and Clearing's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 18 analysts we track are forecasting for Hong Kong Exchanges and Clearing for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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