CNOOC (HKG:883) Will Pay A Dividend Of CN¥0.73

The board of CNOOC Limited (HKG:883) has announced that it will pay a dividend of CN¥0.73 per share on the 17th of October. This means that the annual payment is 7.1% of the current stock price, which is lower than what the rest of the industry is paying.

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CNOOC's Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, CNOOC's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 0.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for CNOOC

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was CN¥0.456 in 2015, and the most recent fiscal year payment was CN¥1.28. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. CNOOC 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. CNOOC has impressed us by growing EPS at 24% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

CNOOC Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that CNOOC has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for CNOOC (of which 1 is significant!) you should know about. Is CNOOC 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.