PetroChina (HKG:857) Is Increasing Its Dividend To HK$0.11

PetroChina Company Limited's (HKG:857) dividend will be increasing on the 30th of July to HK$0.11, with investors receiving 47% more than last year. Based on the announced payment, the dividend yield for the company will be 5.7%, which is fairly typical for the industry.

See our latest analysis for PetroChina

PetroChina's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, PetroChina's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 0.7%. If the dividend continues along recent trends, we estimate the payout ratio could be 54%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business 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 dividend has gone from CN¥0.37 to CN¥0.17. The dividend has shrunk at around 7.2% 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

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. PetroChina has impressed us by growing EPS at 31% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that PetroChina could prove to be a strong dividend payer.

PetroChina Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that PetroChina is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for PetroChina that investors need to be conscious of moving forward. 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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