The board of Dongwu Cement International Limited (HKG:695) has announced that it will pay a dividend on the 15th of October, with investors receiving HK$0.072 per share. The dividend yield is 1.3% based on this payment, which is a little bit low compared to the other companies in the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Dongwu Cement International's stock price has increased by 200% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Dongwu Cement International's Payment Has Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Dongwu Cement International was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
If the trend of the last few years continues, EPS will grow by 31.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dongwu Cement International's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The dividend has gone from CN¥0.062 in 2019 to the most recent annual payment of CN¥0.12. This means that it has been growing its distributions at 39% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Dongwu Cement International has grown earnings per share at 32% 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 Dongwu Cement International could prove to be a strong dividend payer.
We Really Like Dongwu Cement International's Dividend
Overall, we like to see the dividend staying consistent, and we think Dongwu Cement International might even raise payments in the future. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Dongwu Cement International that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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