China Motor Bus Company (HKG:26) Has Affirmed Its Dividend Of HK$0.30

The board of China Motor Bus Company, Limited (HKG:26) has announced that it will pay a dividend on the 17th of October, with investors receiving HK$0.30 per share. This payment means that the dividend yield will be 6.3%, which is around the industry average.

Check out our latest analysis for China Motor Bus Company

China Motor Bus Company's Distributions May Be Difficult To Sustain

Unless the payments are sustainable, the dividend yield doesn't mean too much. China Motor Bus Company is unprofitable despite paying a dividend, and it is paying out 489% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Looking forward, earnings per share could 77.2% over the next year if the trend of the last few years can't be broken. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from HK$2.30 total annually to HK$3.20. This means that it has been growing its distributions at 3.4% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

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. Over the past five years, it looks as though China Motor Bus Company's EPS has declined at around 77% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

We're Not Big Fans Of China Motor Bus Company's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for China Motor Bus Company that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.