China Oriental Group's (HKG:581) Dividend Will Be Reduced To CN¥0.03

China Oriental Group Company Limited (HKG:581) is reducing its dividend from last year's comparable payment to CN¥0.03 on the 18th of August. The dividend yield of 7.8% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for China Oriental Group

China Oriental Group's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, China Oriental Group'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.

Over the next year, EPS is forecast to expand by 162.5%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

China Oriental Group's Dividend Has Lacked Consistency

Looking back, China Oriental Group's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from CN¥0.0425 total annually to CN¥0.0876. This means that it has been growing its distributions at 13% per annum over that time. China Oriental Group 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.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. China Oriental Group's earnings per share has shrunk at 31% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On China Oriental Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for China Oriental Group that investors should know about before committing capital to this stock. Is China Oriental Group 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.