China Motor Bus Company (HKG:26) Is Paying Out A Dividend Of HK$0.30

China Motor Bus Company, Limited (HKG:26) has announced that it will pay a dividend of HK$0.30 per share on the 19th of October. This payment means that the dividend yield will be 4.9%, which is around the industry average.

See our latest analysis for China Motor Bus Company

China Motor Bus Company Might Find It Hard To Continue The Dividend

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This makes us feel that the dividend will be hard to maintain.

Looking forward, earnings per share could 53.4% over the next year if the trend of the last few years can't be broken. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, 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. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 53% over the last 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.

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 isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. 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.