Sinopec Kantons Holdings (HKG:934) Is Due To Pay A Dividend Of HK$0.12

The board of Sinopec Kantons Holdings Limited (HKG:934) has announced that it will pay a dividend of HK$0.12 per share on the 25th of July. The dividend yield is 6.9% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Sinopec Kantons Holdings

Sinopec Kantons Holdings Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Sinopec Kantons Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, EPS could fall by 18.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 162%, which could put the dividend under pressure if earnings don't start to improve.

Sinopec Kantons Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was HK$0.035 in 2013, and the most recent fiscal year payment was HK$0.20. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Sinopec Kantons Holdings' EPS has declined at around 18% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Sinopec Kantons Holdings' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Sinopec Kantons Holdings (of which 1 is significant!) you should know about. Is Sinopec Kantons Holdings 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.